I saw a house sell for $100k over list price!! What gives?!!

SCOTT MOORE, REALTOR

If you’re a home buyer right now, especially if you’re in the $350-$550 price range, this is probably something you’ve been seeing a lot. If you’re confused, I get it. It is hard to make sense of these wild numbers.  

The number one reason a house would sell for so much higher than it was listed for is that it was listed for less than it’s worth.

Some vendors and realtors will list a house outrageously low in the hopes of getting enough interest that it drives someone to pay an above-market-value price.  It’s an interesting strategy. It can be risky for sellers if it doesn’t work out, and can be very confusing for buyers, but it can work.

Let’s say a vendor paid $350,000 for their house several years ago. They have done some updates, plus its improved in value, and the house is now worth around $425,000. Now, they list the house at $349,900. This price represents a loss— it doesn’t cover their land transfer tax, the appreciation, the renovations, or the commission to sell it—but they don’t really plan to sell it for that price.

What happens next is that buyers recognize that the house is way nicer than the other houses in its category, so they probably get 75 to 100 showings, and then probably get 10-15 offers presented on the offer date. Wow!! Right?

There’s a bit more to it. Five of those offers will be between $350-375, which are well below market value. Even though these offers are above list price, they are essentially low-ball offers without a chance of being accepted.  Most below-market-value offers come from inexperienced realtors that haven’t learned that the list price is not necessarily related to the value, or from clients that want to throw in an offer “just in case.” Neither is likely to get the home, however, these people are very valuable to the vendor. They need the unreasonable offers to make the good offers step up.

A couple offers will be more realistic in the $400-$425 range. These people think they are stepping up big time as their offer is $50-$75k over list price, but they are still slightly below market value.

If the vendor is lucky, one or two offers will be at $435,000 (slightly above market value, a fair premium to pay to lock down a good house in a competitive market), and, if they are really lucky, one will be frustrated enough that they’ll pay another $10k and come in at $445,000.

So even though the house sells for $95,000 over list price, the house has only sold for $20,000 over fair market value. The vendors still got lucky, but it’s nowhere near as dramatic as it looks.

So how does a buyer know what to offer in a situation like this? An experienced and analytical realtor will have uncovered what the house sold for originally, will factor in the closing costs on the purchase and the sale, and estimate the cost of the work that’s been done to give you the real ‘break even’ cost for the home. Then, they will calculate a current market value based on similar recent sales. These two numbers will help you figure out a fair starting point for making an offer.

In the example we’re talking about, the realtor would have landed at $425,000 as the starting point, which is fully $75,000 above list price. I get that this is a hard pill to swallow.  It’s hard to trust a realtor when the numbers are this high. Some people need to bid, lose, and see how far their offer was from the selling price a few times to be able to make sense of it. The other option, which wastes less time and causes less heartbreak, is to use a skilled, experienced and competent realtor that can confidently explain their analysis and earn your trust. We are available here at The Moore Group for anyone that wants to take the second route.  

So what are we doing with this house in our example? To recap, list price is $349,900, we have 12 offers on the table, and our realtor has told us the starting point based on the vendor’s cost and fair value, is $425,000.

The old rule of thumb at this price point used to be to offer an extra $5,000 per offer on the table, but when the list price is so far off-base, this rule doesn’t work.  With 12 offers, $5k per offer only brings us to $410,000, which is too low on a house we think is worth $425,000.

The answer to how much higher to go that the realtor’s starting point number starts with a question: How much of a premium do you want to pay to get this house?

First, when there are 12 people bidding for a house, something is working. It doesn’t matter how many tricks were used to get people through the door; the fact that 12 people are prepared to put pen to paper on this house means something. You can be pretty confident it is a good house in a good area that will probably be a good investment. The desirability of the home is worth a premium.  

Secondly, how much do you value this particular house. If its two doors down from your best friend and a short walk to work, this house is worth a premium. If it’s got the perfect home office and a wheelchair-accessible bathroom for when grandma comes over, it’s worth a premium. If it would be hard to replicate this house, it’s worth a premium.

Third, how much do you value getting this done? Have you written several offers and been outbid every time? Are you sick of spending 20 hours a week shopping for a home? What if it takes you six months to find another house? Your time, your family’s timeline and your level of frustration all matter too. It’s ok to pay a bit of a premium to be able to move on.

Your realtor’s job is to break through the noise and the gimmicks and give you the real value of the house. Beyond that number, the offer price is up to you to figure out, and for you to feel good about.

If you got the house, great, congrats! If you didn’t, our realtor Stephanie Baron has some great advice about how to shake it off.