A question I get a lot: “Are market value and listing price the same thing?”
The short answer is this: NO!
Especially in a low-supply, “seller’s” market.
Let me start digging into this topic with a caveat: the ‘traditional strategies’ that real estate agents use to price a house have gone out the window. For the moment.
Let me explain…
When there is ‘balance’ in the real estate market between supply and demand, the traditional strategies work just fine. I will cover those first so that you understand what gets ingrained into a real estate agent’s head over the years.
BUT we are NOT in ‘balance’. We have a low supply of houses coming onto the market for sale. We also have incredibly high demand for houses from buyers who WANT to buy NOW!
So how does a real estate agent, me for example, help a buyer figure out a ‘price’ on a home? And help the buyer submit a winning offer?
If you want to go directly there, scroll down to the end of this article.
The ‘Traditional Strategies’
I think it is important to have a quick review of the ‘traditional strategies’ we real estate agents have used successfully in a balanced market.
I work with sellers to price their homes based on recent sales, in order to attract offers from market-savvy buyers. In this process I try to understand the ‘why’ of the seller. Why are the selling? Why do they want to get that price? etc.
If you’re a home-buyer, I help you to understand the difference between what the seller wants for the property and what the property is truly worth in the current market.
Based on the info above, it should be clear that listing price and market value are not the same thing. True in a balanced market as well as in a low-inventory market, like today.
I always tell my buyer clients that I do not necessarily care about a property’s listing price. I would rather know what similar properties have sold for in the area. The comparable properties will be a better explanation of what the likely selling price will be rather than the listing price itself.
How do sellers choose the list price of their home?
Some sellers base their asking price on “logic”. Others base the list price on the amount they need to get out of the deal in order to pay off their existing mortgage balance. You’ll be able to figure out what their intention was by determining true market value of the property.
Let me dig into the differences between market value and listing price. It’s helpful to understand the psychology of a seller and the listing agent when it comes to determining how to price a home. (I hope I am not giving away all my secrets here lol)
If a seller is looking for a quick sale that will generate a lot of interest, they will typically list below market value. Their listing price will seem inexpensive and will usually attract a number of people to the open houses and showings. This buzz will demonstrate a high demand to buyers and can result in multiple offers. Because buyers will be aware that they are competing, it is likely that they will offer above the listing price and possibly free of conditions.
If the seller’s property is in high demand but they are looking for a quick sale, then they may list at market value. In the current market, they will probably end up receiving enough interest and multiple offers so that the property will sell above market value. This is happening because some buyers will be basing their price partially on the listing price.
If seller’s have a firm idea of what their home is worth and are not in an immediate rush to sell, they may test out the market and list above market value. In the case that they do receive an offer, they can negotiate strongly to maintain the listing price. Their goal is to at least get something closer to their high goal price than if they were to list well below market value.
How do I know what price to offer on a home?
I know it can be really difficult for a buyer to wrap their head around paying $75,000 more than the asking/listing price. But I try to help you (as a buyer) to distinguish between asking price and market value. I help you look past the seller’s strategy to just focus on the most likely end results.
Many first-time home buyers think they should offer whatever the seller has asked for. This isn’t always the best strategy. Every seller is different when it comes to real estate pricing strategies. Some sellers are realistic about local market conditions and comparable properties. Others are well over-priced.
You have to handle each seller’s home pricing scenario differently. The key to making a smart offer and determining what price to offer on a home is by evaluating similar comparable sold properties.
What is the general equation for a comparable (aka comp)?
Sold properties that are similar, recent, and within same area — those are the three most important ingredients for a good comp.
- It will have a similar number of bedrooms and bathrooms, as well as interior size and exterior size if applicable.
- A recent sale is anywhere between 30-90 days.
- The same area means that the comparable is preferably in the same neighbourhood/part of the city
You’ll want to look at how quickly the comparables sold, and if they sold “condition-free”. You’ll also want to factor in the quality of any renovations from the sold properties in comparison with the subject/target property. Other factors we take into consideration include things like dens, views, main roads, school proximity, etc. You need to weigh the pros and cons of each ‘comp’ property along with their respective selling price. All of this will help to determine the market value of the subject property.
Keep in mind that estimating market value is much more complicated than just looking at similar properties. Sometimes it depends on the buyer’s situation. For example, if a buyer has already sold their home and needs to move into a property in 2 weeks or they’ll be homeless. They will probably be willing to pay more than someone who’s still renting, that is in no rush to buy. If the desperate buyer is willing to pay more for the home, then it becomes the new market value.
In a ‘balanced market’ when you can use the traditional strategies, an experienced agent is your best asset
Engage an experienced agent with a strong history of working with the difference between market value and listing price. They will be your best asset when negotiating offers. Having been involved in many real estate transactions over the years, I can tell you that sellers are up and down and in between when it comes to listing prices. Some are very realistic and others may seem like they are dreaming. My role as a realtor on the buyer’s side is to ensure that you don’t overpay.
As a realtor, I have access to a history of the sales prices and more accurate details when it comes to houses that have sold, expired, terminated, and are active on the market. I can easily provide you with a comprehensive list of comparable properties.
Today’s market realities … for buyers. .
The market today has been impacted by the following:
- low inventory ie not enough houses for sale
- rising mortgage rates
- high(er) inflation
The result: LOTS of people rushing to buy. In many cases, rushing in to buy at almost any price. To ‘get into the market’.
This throws the whole concept of looking at ‘recent comparable sales’ out of whack. It seems like the market has become “irrational”.
One recent example: “We wanted that house. My wife is 7 months pregnant and we need to buy and move in less than 60 days. We were willing to pay $500K OVER listing price to try and get this house.” But another buyer offered $1M OVER listing to be sure that they got this house. After losing out on 4 other properties, they were NOT going to lose this one. Even if it meant paying much more than listing. Much more than the appraisal value.
That’s just not the traditional ‘rational market’ strategies at work.
So just HOW do I help YOU price a house and put in a winning offer in this market?
The short answer, for today, is “call me, email me and book a short meeting with me to discuss”. I’ve got another blog post coming that will outline the “how” – I don’t want to make this one too long.
BUT if you want to talk about it before the blog post comes out, call me at 613-769-6222 or email me at paul@pauljacksonottawa.com
I’ll help you navigate the challenges of the current market and get the keys to that new house in your hand.
Talk soon
Paul
Recent Comments