In Today’s Market, Listing Prices Are Like an Auction’s Reserve Price

For generations, buying and selling a home never really changed. A homeowner would try to estimate the market value of their house, then tack on a little extra to give themselves some negotiating room. That figure would become the listing price. Buyers would then try to determine how much less than the full price they could offer and still get the home. As a result, the listing price was generally the ceiling of the negotiation. The actual sales price would almost always be lower than what was listed. It was unthinkable to pay more than what the seller was asking.

Today is different.

The record-low supply of homes for sale and strong buyer demand are leading to a rise in bidding wars on many homes. Because of this, homes today often sell for more than the list price—in some cases, for a lot more.

According to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR):

“For every listing there are 5.1 offers. Half of the homes are being sold above list price.”

You may need to change how you look at a home’s asking price.

In this market, you likely can’t shop for a home with the former negotiating approach at a lower price.

Due to the low supply of houses for sale, many homes are now being offered in an auction-like atmosphere in which the highest bidder wins the home. In an actual auction, the seller of an item agrees to take the highest bid, and many sellers set a reserve price on the thing they’re selling. A reserve price is the minimum amount a seller will accept as the winning bid.

When navigating a competitive housing market, consider the house’s list price as the reserve at an auction. It’s the minimum the seller will accept in many cases. Today, the asking price is often becoming the floor of the negotiation rather than the ceiling. Therefore, if you love a home, know it may sell for more than the sellers ask. So, as you’re navigating the home-buying process, make sure you know your budget, know what you can afford, and work with a trusted advisor who can help you make all the right moves as you buy a home.