Asking price is just a number and it doesn’t mean much
Dear home buyer,
We’ve seen it especially in the Greater Boston market-- Homes selling for $50k over asking price! $30k over asking price! And so on. Home buyers and sellers often talk about their home sale experience based on their purchase price relative to the asking price. Is this the right way to think about it? When home buyers see a lovely home hit the market, they focus almost entirely on photos and the asking price.
But, what is the asking price and where does it come from?
The asking price on a home is arrived at by the seller and the seller’s agent. It’s their way to attract (you) buyers and eyeballs to the property. The asking price is often not geared to match home comparables. Home comparables are similar homes and their recent sale prices.
Sample Home Comparable Report (Full report contains more details):
Below are the strategies most often used to determine an asking price:
Buyers tend to have a price range in whole numbers, for instance $750,000-$900,000. Seller agents know this and in order to attract you they will price the property at $899,000 so that when this you filter on price the home shows up in your results. The difference of $1,000 to the seller and the return they get in eyeballs is often worth it.
Shooting for the moon
Sellers, especially those that bring new construction to market which include high end luxury finishes or properties located in high priced neighborhoods, often price high. Claiming all the great aspects of their amenities and quality home finishes, these sellers shoot for the moon hoping a buyer with deep pockets will be lured in to make an offer. These sellers often build in enough cushion in their pricing for the home to sit on the market for weeks if not months. You will also find this where the intrinsic value of the land is high or sought after.
This is when the asking price for the home is first priced over the market comparables at $1.8M and sits on the market for 95 days to eventually sell at $1.6M.
Let the market decide
With all of the market volatility we have seen from low interest rates and Covid-19, many seller agents have decided to price properties low with the hopes of firing a bidding war between buyers. In these cases, we have seen as many as 30 offers or more on a home with little to no contingencies or safety measures for the buyer. Sellers allow the market of buyers to decide what the home is worth. This is especially the case when there is little available inventory on sale. We’ve seen this through the pandemic, single family homes with generous backyard space are highly sought after and there isn’t enough to go around.
This is when the asking price for the home is first priced under the market comparables at $550k and sells in a couple of days at $625k.
Pricing at market
The final strategy is arriving at an asking price based on recent sales of similar property. The seller agent will develop a study of comparable sales primarily based on home living square footage, amenities, location, neighborhood, land on the property, and age of the home. If they use the outcome of the study as the asking price, the seller agent is marketing the home at a price that most recently the market of buyers have been willing to pay. This is when the home is first priced along with market comparables at $750k and sells near it.