Why Even 'Ordinary' Homes Sell for $500,000 Over the List Price

It did: a premium of about $782,000 above his asking price, selling for $2.47 million a few weeks later.

“It was unbelievable,” says Dave Clark, Mr. Malcolm’s real-estate agent. Even in the notoriously overpriced Silicon Valley, where he regularly gets 10 or more offers for a listing, this one was different. It drew 21 offers.

It is no secret the housing market is on fire. Last year, almost a quarter of all U.S. home sales were above asking price, according to real-estate listings website Zillow. But the average premium over asking for those homes was $7,000—not $700,000. Even in the hottest real-estate markets, where there is a severe shortage of inventory, the highest bid typically isn’t more than a couple hundred thousand dollars over asking.

What often distinguishes the houses that go way above asking—half a million or more—is a feature that the other homes in the neighborhood just don’t have, says Toby Lumpkin, a real-estate broker with Realogics Sotheby’s International Realty in Seattle. That can be a better view, more southern exposure, an especially tasteful renovation, a three-car garage in a parking-challenged city, or a side yard, which is what set apart Mr. Malcolm’s house. It’s also often a price low enough to attract attention.

When Kerry Bucklin saw a house for sale on Mercer Island, Wash., on the waterfront, he thought its price of $1.995 million was too low. The Midcentury Modern home, built in 1959, needed updating and shared 210 feet of waterfront with five other houses. But it was the closest of the houses to the shore, offered unobstructed views in a parklike setting and allowed him to go paddling on Lake Washington without having to load a canoe on his car. At the same time, the property was close to the freeway, shaving 6 miles off his commute to work.

Mr. Bucklin, 55, a real-estate lawyer, had been looking for a couple of years to replace the large family home mid-island, where he lived alone since becoming an empty-nester. He bought the home in June by paying $500,000 over asking and beating seven other offers.

In Washington, D.C., a house in Georgetown listed at $4.9 million sold for $5.6 million after only a few days on the market—$700,000 over its asking price.

That is because it had a bevy of desirable features, says Christie-Anne Weiss, a Realtor with Ritzert Weiss Partners in Washington, D.C. It was on a quiet street, close to lots of stores and restaurants, was already renovated, came with three parking spaces, had lots of bedrooms plus a heated pool, and it was semidetached—with the long side of the house facing south, allowing light on three sides, a rare find in Georgetown.

“There’s so much pent-up demand,” says Ms. Weiss.

Nowhere is demand more pent up than in the San Francisco Bay Area. In the past four months, 39 homes in Silicon Valley have sold for $500,000 or more over the listing price, says

Mark Wong,

a real-estate broker with Alain Pinel Realtors, based in Saratoga, Calif.

That figure includes a “lovingly cared for and well maintained home” (read: not updated). The 53-year-old, three-bedroom, one-story house on 0.197 acre in West San Jose got 15 offers and sold to an all-cash buyer for $2.5 million—$815,000 over asking. A three-bedroom, 2,040-square-foot house in the Glen Park neighborhood sold in October for $2.6 million—nearly $1 million over its listing price of $1.675 million.

Seattle is another hot spot. Over the past year, the city has seen the greatest increase in the country in the share of sales above the asking price, surging to 52% of home sales in 2017 from 20% of sales in 2012, according to Zillow.

One example: a three-bedroom, 3,980-square-foot house in Medina that

Charles Simonyi,

who recently sold Intentional Software to

Microsoft
,

bought for $3.5 million—$500,000 over the list price, according to public records. (Mr. Simonyi and his wife, Lisa, declined to comment).

In the suburb of Bellevue, Arman Manoucheri had been looking for a house for three years, but nothing seemed right. Then, one day, he saw it: an updated blue painted Tudor with views that reminded him of Bellagio in Italy, and lots of privacy so he could play his drums at night without bothering anyone.

“My heart dropped. I realized you cannot put a price on this because it couldn’t be duplicated,” says the attorney. He got the house for just over $500,000 above the $2.125 million listing price.

Many bidding wars in the Seattle area are won by people paying all cash. More also are removing contingencies such as inspections and financing, and putting down nonrefundable deposits of $100,000 or more, says Daniel Marinello, director-broker with Windermere Real Estate on Mercer Island.

Mike Moghaddas of Avenue Properties, says more clients request so-called escalation clauses in their bids: an agreement to beat the highest offer by a certain amount.

Bidding wars are less common in cities such as Chicago, Los Angeles, Miami and Boston. New York has seen only a handful of sales of $500,000 and more over the asking price in the past year. One, Greta Garbo’s longtime apartment, sold in December for $2.55 million above the $5.95 million list price.

Sometimes a premium is about marketing. Helen Hitchcock put her 7,000-square-foot, seven-bedroom home on Mercer Island on the market for $6.5 million in March. A real-estate broker, she knew not to include the 8,600-square-foot lot with a view that she also owned behind her house, and which could have been bought by a developer.

After two days, a potential buyer came by and Ms. Hitchcock offered him the extra lot for an additional $1 million. He bought the package for $7.5 million 15 minutes later.

“I knew anyone who could afford our house would want the back lot, too,” she says.