No homebuyer wants to get ripped off. They want to know they’ve scored the best possible deal for their dream home. Thus, understanding the importance of an asking price is necessary for prospective homebuyers.
In this article, we’ll answer, “What does asking price mean” in varied contexts. Then, we’ll cover how to negotiate based on the asking prices in different market scenarios.
What is an asking price in real estate?
An asking price is the amount of money a home seller lists their property for when putting it up for sale. So, it’s also referred to as the listing price.
A seller will set the asking price at the amount they hope to receive from a buyer. Thus, the purpose of listing prices is to attract prospective buyers at a particular price point.
The meaning of asking price changes based on the buyer or seller’s perspective. The buyer may simply see a listing price as the initial figure to negotiate with. Yet, the seller is more likely to see the asking price as a representation of their home’s value.
What does the asking price mean to the seller?
Sellers know that the asking price isn’t typically the amount their property ends up selling for. Thus, it’s generally the lowest value a home seller will accept to sell their property. With this in mind, a seller might set a higher listing price to accommodate for negotiations.
It’s important to note that sellers don’t make up some arbitrary number when setting the asking price. There are various factors they take into account to come up with an amount they deem fair.
How is an asking price determined?
Strategy plays a big role in determining a home’s listing price. Your real estate agent will have a good idea of what the asking price means in terms of what your house is worth. They can give you an approximate value of your home based on market conditions and properties similarly situated to yours.
For example, say that recently sold homes in your neighborhood went for between $670K and $720K. Under these circumstances, your real estate agent would likely advise you to list your home at a price in that range. But, to pin down an exact amount, you’d need to consider the time of year, inventory, and what type of market you’re in.
Another factor to take into account is small neighborhood details. These details may include any of the following:
Whether your home is close to a bike path, playground, or pond/stream
Whether your home is close to a noisy highway or train tracks
Whether your home is on a corner, in a cul-de-sac, or somewhere in between
Whether your home has a steep driveway (especially if it’s located in a cold region where driveways can get icy in the winter)
When you take small details into consideration, two identical houses in the same neighborhood can vary in asking price by as much as $100K. So, it’s important to look closely at details to come up with a fair listing price. This way, your asking price will represent the true value of your home.
Listed price vs selling price
The selling price is the dollar amount that someone buys your property for. Selling prices differ from listing prices as a result of negotiating.
The average difference between a listing price and selling price
Most homes that are listed for over 14 days end up with a selling price that's typically within 5% of the original asking price. The gap between the asking price and selling price depends on the market price/value.
Market price vs selling price
The market price is the current value of a house. It’s typically based on the sale prices of comparable homes. But, a home’s market value is also affected by the size and age of the home, supply and demand, renovations– the list goes on.
As a prospective homeowner, knowing the current market value is key to paying a fair price on your new house.
Why the market value is important to the asking price
So, what does the asking price mean in relation to the market value of a property? How a buyer perceives the asking price greatly depends on what the current market price is. Thus, the market value of a home is a helpful tool buyers can use to plan a negotiation strategy.
How homebuyers negotiate the real estate asking price
It’s critical to know how much leverage you have before negotiating with the seller of your desired home. This is because your negotiating room is inversely proportional to the supply and demand in the market.
Assess the market
Your real estate agent is an invaluable asset when it comes to assessing the local market. The state of the housing market is measured by how much supply and demand there is in a specific area.
In real estate, a pendulum constantly swings between two types of markets: The buyer’s market and the seller’s market. So, let’s explore what each one entails and what they mean in terms of negotiating power.
Buyer’s market
You’ll find yourself in a buyer’s market when there are more homes for sale than there are buyers. Because inventory is higher than demand in this situation, homes tend to sit on the market for a long time. As a result, houses are likely to have lower asking prices. Thus, homebuyers have more leverage when making an offer.
With buyers’ markets come greater flexibility on price. This means that the offers sellers receive are few and far between. In turn, it makes them more willing to negotiate with you. Many real estate experts say offers lower than 10% of the asking price are considered worthy in a buyer’s market.
Seller’s market
In a seller’s market, homes are likely to be overpriced as the current demand weighs out the supply. Under these conditions, many buyers may express interest and bid on the same home. So, what does the asking price mean when negotiating in a seller’s market?
You’ll have less bargaining power with an asking price as a homebuyer in a seller’s market. With inventory lower than demand, sellers may be getting offers left and right. Likewise, they may not be keen on negotiating with you as they can count on numerous bidding wars. So, it’s best to make an offer at the list price or above if you want to make your desired house your home.
Lowball offers
A lowball offer can work in your favor or be downright insulting to the seller. This all depends on which type of market you’re in. For example, in a buyer’s market, the selling price of your new home could end up being 20% lower than the asking price.
On the other hand, making a lowball offer in a market where sellers have the upper hand can make you look like an amateur. As a result, the seller could write you off entirely. Plus, you’re likely to lose the home to another buyer who made a better offer.
Look at comparable homes
One of the most helpful ways to figure out what to offer on an asking price is to look at comparable sales. Your real estate agent can draw up a comparative market analysis, also called a “comp,” to show you the sale prices of similar homes. When you find a comparable home, look at its condition and features. Then, check how it compares with your desired home to help you come up with a fair counteroffer. Presenting your findings may even lead the seller to reconsider their asking price.
Find your perfect home
For homebuyers, negotiating the asking price means trimming it down to a fair price. It's important you get the best possible deal, as even a small price cut can make a huge difference in your monthly mortgage payments.
Talk to one of our mortgage experts to get a pre-approval. A pre-approval can tell you what budget you’re working with before you negotiate a home's asking price.