We see so many headlines about asking prices changing and prices falling based on asking price information, but have you ever looked at what asking prices really are and what they mean?
Let's take a look.
Asking Price: The price chosen by a seller at which a property will be marketed.
How is the asking price determined? That usually depends on the relationship between the seller and the selling agent.
Some situations you have a seller that is removed from reality and has a set figure in mind with no reasoning to back up a potentially astronomical figure. Sometimes you have a seller that's incredibly well informed and has determined what they believe will be a fair sales value. And then sometimes you have sellers who are super desperate to sell and have priced the property to sell near instantaneously. (and all the other situations in-between)
A good agent should inform the seller of what is happening in the market, where pricing should be and for what reasons they recommend those asking prices.
Excellent pricing strategy will not only lead to shorter times on the market but also to more optimised sales prices. (there is fantastic data on this for those who want to discuss this further)
With the help of a great new tool from Loop.software I recently looked at a random area in London and compared asking prices. I wasn't shocked, but I was still surprised by the sheer number of homes selling for more than 5% below asking price. This difference means asking prices were not set correctly, to begin with.
The selected area had a -6.1% differential of asking price to price sold. And looking at those properties with the more considerable differences between asking and sold, they were on the market for much longer.
What does this mean to buyers and sellers in the marketplace? It means you should really understand the value of what you are looking to buy or sell (see an article about that here) and then make informed decisions from there.
Some asking prices might be lower than what a property will sell for as a way to draw in prospective buyers, others, which should be the norm, will be priced within only a few percentage points of what it ends up selling for. and then there will be those that are way overpriced.
As a buyer in this market, base your decisions on value and knowledge not the expectations of a seller. Having someone on your side to help you with this can save you significant time, hassle and money.