Is It OK to Pay Over List Price for a Home?

House sold before we could look at it.

House sold before we could look at it.

A reader asks: “Every home we have been interested in looking at lately is sold from under us. Sometimes, the home sells before we even get to look at it.

Our REALTOR® is telling us we have to be faster and pay over list price.

I guess we could act a little faster but why should we have to pay more than list price, more than what the seller is asking? That sounds like our REALTOR® just wants to make more money from us. What gives? Is it OK to pay over list price for a home? Would anybody ever do it?”

Answer: First, let’s address the issue of whether your agent will push a higher price on you so the agent can get paid more. That’s most likely untrue. It’s unethical. Moreover, if you figure that agents get paid a small percentage of the sales price, the amount they would receive for a $10,000 price increase, for example, hardly amounts to enough to pay for a dinner for two at a nice restaurant.

On the other hand, it is completely understandable how a home buyer might be reluctant to pay over list price for a home. After all, if you go into a grocery store to buy a loaf of bread, you don’t expect the grocery clerk to ring up a higher price for that loaf of bread than the amount shown on the sticker. Why should you pay more for a loaf of bread?

Now, imagine there has been a terrible flood. All of the roads into town are washed out. Nobody can get in or out for days. The grocery store aisles are pretty much bare, yet there remains one loaf of bread sitting on the shelf all by itself.

There is a line of shoppers waiting outside the door for the store to open. All eyes are on that one loaf of bread. Now how much would you pay for it? This is exactly what happens in a seller’s market and why you might have to pay over list price for a home.

Why Buyers Pay Over List Price in a Seller’s Market
For many buyers, paying over list price for a home goes against the grain.

It goes against everything they have ever known about real estate, which is to say they think you’re supposed to negotiate. How can a buyer negotiate if the seller wants more money way over the asking price? How high do you go?

The problem is competition. You’ve got more buyers than there are homes to buy in a seller’s market. In real estate lingo, it’s known as limited or falling inventory. Whenever you have a big demand for a product in small supply, the price for that product goes up. In a multiple-offer situation, the final price often exceeds the list price.