Asking price? Don't care!

Why do people look at asking prices to try to gauge the real estate market?

Markets are formed by sold prices, no matter what market you may be trying to examine in this world. Bid and ask prices do not tell you what a stock is worth, so why are consumers so interested in the asking prices of real estate? Why do realtors flaunt about selling over the asking price, when clearly the asking price was not the market price to begin with? Why do news headlines read "Sold $300,000 over asking in Oakville!!"

Asking prices for real estate are created by sellers together with their listing agents. There are many strategies that can be used when deciding on an asking price, in fact in 2022 we saw every strategy there is. In the beginning of 2022 when the market was a very strong seller’s market, most sellers were underpricing their homes on purpose to create a multiple offer situation in order to bring the entire market to their house in the shortest period of time possible. The sellers were doing this because they had most likely already bought their new house and wanted to ensure they had the money to pay for it. We have also seen asking prices that are much higher than what the market will bear from sellers who may have not been in a rush and were “testing” the market, or possibly didn’t value the advice they were being given, or they could have been given terrible advice by a realtor who did not sufficiently know the market. We have also seen strategies that fall in between these two extremes such as what we call a “soft bidding war” where the price is artificially low, but not quite as severely as the first example and instead of holding back offers with a specific offer date, the sellers may have wording such as “Please allow for a 48 hour irrevocable on all offers”. The goal with this strategy is if the realtor and seller both feel that the market has grown weary of the “holding back offers until” tactic, they don’t want to scare buyers away but still need an efficient sale. The lighter level to the aforementioned tactic is the 24 hour irrevocable which generally has asking prices even more close to the true market value. There is also my most preferred method of selling a house in any market is to ask the actual true market value and not have any restrictions on offers. It’s been my experience that this method outperforms all others in a balanced market as it brings qualified buyers and agents to the negotiating table with solid offers. Here is a look at the most likely outcomes selling the same house using different tactics in different markets:

February 2022 (Seller’s Market) House A - True Market Value (TMV) $2,000,000, Asking Price Feb 2022 $1,800,000, selling Price Feb 2022 $2,000,000

May 2022 (balanced market) House A- TMV $1,600,000, Asking price in May $1,800,000, didn’t sell in 30 days, reduced asking price to $1,750,000 in June, reduced to $1,699,900 in July, sold in August for $1,600,000.

You see in both of these examples, the asking prices never reflected to true market value of House A. These situations have been rampant in our market for many years but most potential buyers and sellers still prefer to peruse listings on websites that are for sale with asking prices that do not represent the market value of the homes. In fact it’s common for me to hear that people have heard the market has dropped by 20% but looking at the asking prices it doesn’t look like that price drop has happened here yet. The price drop has indeed happened but the asking prices don’t show it every time. Sold prices show it. If you want to gauge the market, the only way to do that is to examine sold prices, sold prices show you the facts. Don’t be fooled by tactics.