Asking Price vs Selling Price: Real Estate Market Value

by Richard Morrison
January 17, 2020
Buying
0

Buying or selling a home is a complex process with many moving parts. One of the most important decisions is setting the right asking price if you are the seller. The asking price is what you initially list the home for, but that doesn’t necessarily mean it’s what someone will pay. The actual selling price could be higher or lower depending on several key factors.

Table of Contents show

Key Takeaways:

Asking price is what the seller lists the home for, while selling price is what the buyer actually pays. They often differ.
Factors like market conditions, property condition, location, and motivation impact the selling price.
Smart pricing strategy is crucial for sellers to maximize profit but still attract buyers.
Buyers should compare to similar listings and make reasonable offers based on market value.
Real estate agents help both buyers and sellers interpret asking vs. selling price more accurately.

I’ll never forget the first home I listed as a new real estate agent. My clients wanted to sell their suburban 4-bedroom house for $350,000 based on what they thought it was worth. However, comparable properties in the neighborhood had recently sold for $325,000. I advised them to list for $335,000, but they insisted on their higher price.

After 2 months with no offers, we dropped the price to $325,000. Miraculously, we received 4 offers within 2 weeks and sold for $320,000! It was a valuable lesson on the importance of pricing based on the market rather than emotions or assumptions. My clients left money on the table by overpricing initially.

Asking Price – What the Seller Wants

When a home is listed for sale, the asking price is the amount that the seller wants to receive for the property. This number is largely wishful thinking on the seller’s part about what they hope to get. Sellers consider factors like:

Amount of money needed to pay off the mortgage
Desired profit from the sale
Original purchase price and improvements made
General desirability of the property itself

Selling Price – What the Market Determines

The selling price, on the other hand, is the actual dollar amount that a buyer agrees to pay for the home. This number is determined by the market itself based on the law of supply and demand. Some of the key factors include:

Number of comparable homes for sale nearby
Current mortgage interest rates impacting affordability
Overall strength of the local economy and job market
Desirability of the neighborhood itself
Competition among potential buyers for that particular property

There are several possible scenarios:

Selling Price > Asking Price

In a “seller’s market” with high demand and low inventory, buyers will compete for homes by offering over the asking price.

**Selling Price = Asking Price **

If priced just right, a home may sell exactly at the listed price in a balanced market.

Selling Price < Asking Price

When supply is high and demand is low in a “buyer’s market”, homes often sell below list price.

Key Factors Impacting Selling Price

Many variables affect what the final sales price will be relative to the original asking price listed. Here are some of the most important ones:

Market Conditions

The overall direction of the market itself creates a macro environment that influences individual sales. Rising interest rates or an impending recession, for example, will dampen prices across the board.

Property Condition

Buyers want move-in ready homes, so issues like outdated kitchens and bathrooms, roof problems, etc can require price reductions relative to similar homes without those defects.

Location

Not all neighborhoods and regions hold equal appeal for buyers. Proximity to top schools and amenities along with low crime rates make a location more desirable.

Seller Motivation

Motivated sellers typically accept lower offers more readily. Retiring empty-nesters, job relocations, and inheritances are common scenarios where quick sales trump top dollar.

Comparable Sales

Recent selling prices for similar homes provide the best comps to benchmark against. These give buyers and sellers objective measures of market value to anchor negotiations. Significant deviations need to be justified by differences in features or condition.

Negotiations

Direct price negotiations between buyer and seller or via real estate agents ultimately determine the final sales price. Buyers scrutinize listings for value and make offers accordingly.

Time on Market

The longer a home sits without offers, the more likely the seller will need to reduce the price to spark interest from buyers. Stale listings send signals that the home is overpriced for what buyers are willing to pay.

Did you know that homes with green features like solar panels or Energy Star appliances can command a 1% higher selling price on average, according to a survey by Richard Morrison? Buyers today value sustainability and energy efficiency more than ever.

Smart Pricing Strategy for Sellers

Sellers face tradeoffs when deciding what to price their homes at. Price too high, and you risk turning off prospective purchasers and having your home sit stale on the market. But price too low, and you leave money on the table unnecessarily.

Here are some best practices for sellers to set an optimal asking price:

Research recent comparable sales – Look at similar homes in your neighborhood and community that have sold within the past 1-3 months. What was the typical price per square foot? What features raised or lowered the price?
Get an appraisal – Hire a professional appraiser to provide an unbiased estimate of current market value based on objective data points.
Consult a real estate agent – Experienced realtors have their fingers on the pulse of the current market across different submarkets. Leverage their expertise about what homes are selling for.
Consider future trends – If prices are flat or declining, go conservative. If it’s a hot market, you may have more wiggle room.
Factor in needed updates – Be honest about repairs or renovations required to be competitive. Budget and price accordingly.
Leave room to negotiate – Most purchasers expect to negotiate, so you don’t want to start out at your absolute bottom dollar price.

Remember, you want the highest selling price the market will bear, not necessarily the maximum imaginable price. Setting expectations appropriately will attract more purchasers.

Smart Negotiation Strategies for Buyers

For buyers, the Asking Price is merely the seller’s opening offer, not a definitive measure of value. Savvy purchasers take the following steps:

Search listings – Scour current listings to understand the pricing landscape and available options at different price points.
Do your homework – Research property taxes, crime rates, school districts, and other factors impacting the area.
Get pre-approved – Be ready to move quickly when you find “the one” by getting pre-approved for a mortgage in advance.
Know your budget – Have target price ranges in mind that fit your financial means and avoid overextending.
Gauge motivation – Ask your agent if they sense the seller needs to move quickly for some reason. This can provide negotiation leverage.
Make a reasonable offer – Use comparable sales to estimate actual market value, not the inflated asking price. Send an offer you think is fair.
Negotiate – Expect some back and forth with counteroffers. But hold firm on price aligned with market value.
Get an inspection – Use neutral third-party inspectors to identify any issues needing remediation that impact offer price.

In my experience as a realtor, asking price and selling price often diverge by 5-10%, especially for unique properties or uncertain markets. The tips above will equip you to comparison shop intelligently and negotiate optimally to reach a win-win outcome.

FAQs:

Q: What’s the difference between asking price and market value?

A: Asking price is the amount a seller initially lists their property for sale. Market value is the actual fair market worth of a property, which may be different than the asking price. The market value of a property is determined by comparing it to similar properties in the area that have recently sold.

Q: How do you determine the true market value of a property?

A: To determine the true market value of a property, an experienced property appraiser will look at similar properties that have sold in the area, as well as other factors such as location, condition, amenities and features.

Q: What are some benefits to making an offer on a listing that has been overpriced?

A: Making an offer on an overpriced listing can be beneficial if there are enough purchasers in the market who are willing to pay more than what’s listed. This can allow you to get a better deal than if you were to wait for the seller to lower their asking price. It also gives you more time to research the current market and make sure you’re not overpaying for the property.

Q: How do I compare listings and make sure I’m getting a good deal?

A: When comparing listings, it’s important to consider all factors such as location, size, condition and amenities before making an offer. You should also compare similar properties that have recently sold nearby so that you can get an accurate estimate of what your desired property is worth.

Q: What should I consider when weighing my options in different real estate markets?

A: When considering different real estate markets, it’s important to take into account how long each one has been on the market. You should also look at how many purchasers might be interested in each one and whether or not they are likely to compromise their expectations for certain features or amenities. Additionally, it’s wise to compare similar properties that have recently sold so that you can get an accurate idea of what true market values look like.

Q: What is comparative pricing when looking at real estate?

A: Comparative pricing is when you compare prices of similar properties in order to determine what would be considered fair asking prices for certain locations or types of properties. This method helps ensure purchasers receive an accurate estimate of what they should expect to pay for a specific type of home or other real estate investment.

Q: Is there anything else I should consider before making an offer on real estate?

A: Yes! Before making any offers on real estate investments, it’s important to research current trends and changes in your local area so that you can understand what kind of prices buyers might be willing to pay for certain types of homes or investments.

Q: How does location affect my decision when purchasing real estate?

A: Location plays a major role when it comes to purchasing real estate because it affects both how much people are willing to pay for certain properties as well as what kind of variety exists within those areas. For example, beachfront homes may cost significantly more than houses located farther away from water sources due to increased demand from potential purchasers who want access or views of these locations.

Conclusion:

The conclusion of asking price vs selling price comes down to the difference between market value and what buyers are willing to pay for the property. The market value is determined by how long the local market has been active, and factors in similar properties that have sold recently. It is also important to know what the beach house may be worth differently in a different system or area. Regardless, it is important to assume that purchaser will not pay more than what they deem as a realistic amount for the property. Knowing this, it is essential to understand the local market and set an asking price that reflects this, while still leaving room for negotiation.

Ready to turn your real estate dreams into reality? Contact Richard Morrison, Vancouver’s top realtor with 20+ years of experience. As a Medallion Club member and RE/MAX Hall of Fame award winning agent, he’s the expert you need on your side. Whether buying, selling, or investing, Richard’s personalized approach and deep market insights ensure a successful transaction. Reach out to Richard today at (778) 900-2235 and make your real estate journey seamless and rewarding.

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