DEAR DAVID: We’ve heard some crazy stuff about selling prices these days. Some homes are selling for $50,000 over asking price and some for as much as $300,000 over asking. What’s going on? – BLOWN AWAY
DEAR BLOWN AWAY: To understand what’s happening, we first need to differentiate between market value and marketing.
Market value is the price that someone is willing to pay for a house today.
The disparity we’re seeing between asking price and selling price is less about runaway market value, and more about the way our industry markets homes to consumers.
In the last five years, selling strategies have evolved in response to a highly skewed seller’s market. Here in Waterloo Region, homes are typically listed below their projected selling price, with the expectation that a low price will attract more buyers, generate more offers, and ignite a bidding war that could drive the selling price to full market value or beyond.
Underpricing first took hold in the GTA and caught on locally around 2016. Since then, this strategy has widened the gap between listing price and selling price to such a degree that homes appear to be selling for as much as $300 thousand above asking. This absolutely does not mean that they’re selling for $300 thousand above market value. Instead, it means they’re selling above an arbitrary list price unrelated to market value, and the results are being rolled into bragging rights and more clever marketing.
Unfortunately, this pricing strategy flies in the face of what we expect as consumers. When you buy a loaf of bread or a pair of shoes, the price you see is the price you pay (and you might even snag a discount at the register). In real estate, buyers struggle to figure out how much over asking it takes to buy a house, while listing agents work to find a pricing “sweet spot” that’s not too high and not too low, so they can maximize the number of offers they receive without driving buyers away.
A few years back, a home priced at market value would have attracted lots of attention. If it met buyers’ expectations and presented good value, it may also have received multiple offers. These days, a home priced at market value may be bypassed if buyers think the seller wants way too much.
As housing prices grow more nebulous, buyers need an experienced agent to help them decipher actual market values. By the time I show my buyers half a dozen homes, they typically have a keen sense of value and understand what their money can buy.
PRO TIP: Real estate values change in real time, much like the stock market. Buyers need an agent who is on top of fluctuations, to ensure they get the property they want and don’t overpay. #AskDavid #Advice
David is obsessed with client success and helping people get the most from their largest investment. Moving? Get it right. Ask David. Call or text 519-577-1212.