What Are List Prices Anyways?

One of the most difficult hurdles home buyers face is learning not to get anchored by a home’s list price. Day in and day out, we hear clients say they loved a home they saw at an open house, and that they are willing to go up to $50,000 over the list price to win. While we are always happy when our clients find a home they love, often times the client’s basis for a “solid” offer price on the home is anchored solely on the list price.

List prices are a subjective advertising number that the seller and listing agent agree to market the seller’s home for. Without knowing more, the list prices is not in any way related to the amount a seller wishes to receive for their home. For example, if a seller is really hoping to get $1,000,000 for their home, there’s a few list price strategies the listing agent might advise them to take:

• High Price: The seller could list the home for $1,100,000 and then hopefully negotiate a purchase price with a buyer that wasn’t willing to pay $1,100,000 for the home but would be willing to offer $1,000,000. This buyer would tell all their friends that they got an awesome deal!
• Low-Ball Price: The seller could list the home for $800,000 to help attract hundreds of home buyers and agents in hot markets, which could lead to 10–20 offers and create an auction. Ultimately, 2–3 of the top bidders would surface and naturally get emotionally attached, eventually bidding more than they would have otherwise, with the top bid going for $1,000,000, or $200,000 over the original list price.
• Data-Supported Price: The seller could list the home for exactly $1,000,000, the price their comparable sales analysis suggests the house will sell for, and hope that the one buyer that would be willing to pay more than everybody else makes a full-price offer.

As you can see from the above example, the list price can mean many different things and doesn’t necessarily dictate the real value of the home. And there are potential arguments for each list price strategy. In a growing and competitive market, pricing lower and generating more interest to get multiple buyers emotionally involved in bidding is often the best approach for sellers. Here are three homes in the Bellevue, WA area that sold in 2016–2017 for $1.1-$1.2M but saw material differences in the sell price / list price ratio:

• Bellevue Example: Listed for $1,088,500; Sold for $1,195,000 (+$106,500)
• Bellevue Example: Listed for $1,499,900; Sold for $1,230,000 (-$269,900)
• Bellevue Example: Listed for $1,088,000; Sold for $1,110,000 (+$22,000)

When we are working with buyers, here are the steps we advise they take given this dynamic:

1. Search for homes ~20–25% below your range and up to 5–10% over your range (i.e. if you’re shopping for homes in the [$800,000 — $900,000] range, we suggest that you set your price search boundaries between [$600,000 — $950,000]). We’ve observed that in our markets, most homes sell for a price above list price. Therefore, you want to set your list price search range to best capture the homes that will sell for a price within your budget, while also not missing out on homes that might be listed at or above the price they will sell for as well.
2. Go to open houses or tour as many homes that match what you’re looking for in the range you established. When you find a home that you’d like to buy, let your real estate expert know.
3. Your expert will then run a detailed analysis to gauge if this home will likely fit into your budget. We take care of this for you by going through multiple independent steps, including:
4. Comparable Sales Analysis: Our team will find similar homes that have recently sold to help us understand what is the likely price range that buyers are going to be willing to pay for this home.
5. Listing Price Specifics: We’ll talk to the listing agent to understand how they priced the home. What have they heard from other parties? Why is it listed above and/or below the comps that we are seeing? Are they expecting a bidding war and do they have any gut feeling into the price it will go for in the market given what they are hearing? Are they willing to entertain early offers? What the seller’s motivations for selling?
6. Area: We’ll analyze all the other recent sales in the area to find how much other homes sold for, relative to the list price. If buyers are used to homes selling for 10% over list price in a certain area, they’re likely taking that into consideration when deciding what to offer for this home.
7. Listing Agent History: We’ll also analyze the history of this listing agent. Does he/she typically list prices that sell immediately at close to the list price, or does he/she typically list homes well under what they will sell for to generate more interest. The listing agent’s history likely aligns with the same advice they provided this seller.

Ultimately, there are only two things that are important in home buying: 1) finding the home of your dreams and, 2) paying the right price for it! Therefore, while it’s difficult in markets where inventory moves fast, we encourage our clients to check out all homes they are interested in that might fit their price range. And if they find one or a few that they love, not to get anchored on the list price, but to let us do a quick deep dive analysis on the pricing of the home to determine the best strategy to win them their dream home!