The Asking Price? Forget About It…

February 26, 2014

It's Irrelevant.

The fact that homes in San Carlos are continually selling well above their asking price is not newsworthy to anyone who reads this blog, or is even remotely plugged into the local real estate market.   A full 88% of the last 250 single-family homes sold in the City of Good Living fetched their full asking price or higher.   (OK, since I you know you were wondering, the home that sold for the biggest amount over the asking price of those 250 was 294 Devonshire Boulevard, which landed a whopping $632,000 — or 63% — over the list price.)    But I digress…

If you're walking around an open house and you're surrounded by other obviously interested buyers who are asking the listing agent when offers are going to be considered, there's a good probability that this house is going to get multiple offers, and will sell above the asking price.  Frankly, if you've done your homework on house values, you would already know this before you even stepped foot on the property.

So now that you know the house is going to fetch a premium, just like the other 88% of homes that sold before it, is the list price even relevant anymore?   Does it matter what they are asking for the house?  The answer is a resounding NO — and the point of this post is to convince you that the sooner you can file/forget/disregard/ the list price of the home that you will be writing an offer on, the better chance you will have of winning it.

Spin the Wheel.

There's no magic formula or scientific equation when it comes to determining the list price of a home.   That much should be obvious from the inexplicable range of asking prices for similar homes in this market.   Sometimes, they are so out of whack that it seems like the asking price was arrived at by spinning a big wheel on the agent's office wall.  Or maybe a dartboard?

The generally accepted practice is to price the home slightly below its market value to generate lots of interest and multiple offers.   Apparently, there is a wide interpretation to what “slightly” under-pricing a house actually means, because list prices for similar size homes have been all over the map lately.   There are a variety of reasons for this phenomenon, both intentional or inadvertent:  The listing agent may be from out of the local market, and isn't tuned into the micro-fluctuations of the San Carlos market.  Or, the agent may simply be lobbying for an artificially low listing price to help boost their statistics of how much they get over the asking price and how many offers they can generate.    It happens…

It's also the case that it's really difficult to gauge the market demand and inventory from week to week.  Competition has a funny way of changing one's stratey.   And finally, there may be a situation where it's hard to pin the value on what is being sold (i.e. a small home on a large lot, ala 294 Devonshire).

Whatever the reason may be, this highlights a very important fact for home buyers:  You absolutely cannot assume that the asking price of a home is an accurate statement of its value.

Focus on What it's Worth.

As I have stated countless times on this site, home buyers in a competitive scenario often put too much emphasis on how much they are spending over an arbitrary list price, and not enough on determining what the home is actually worth in today's market.

And what is a home's worth in today's market?  A really good starting point would be to compare it to other like homes have sold for recently, ideally no more than the past 30 days.   And if you want even more relevant data, have your agent find out the sales prices of those homes that are pending sale but not yet closed. Then you mix in the pros and cons of this particular home, its location, and its condition, and you come up with a reasonably accurate comparative price.

Kinda sounds just like what an appraiser does, right?  They use the same process to establish a base-line value of a home, and so should you. Then it just becomes an issue of how much above (or below) this base-line that you are willing to go get your home.

Look at it another way — If a decent 3BR home in White Oaks were to list tomorrow $1.1M, and you know that similar homes have been selling for $1.4M (and above), what number are you going to focus your strategy on?   Are you going to fret that you're spending $300,000 over the asking price?   Or, are you going to focus on the fact that the house is probably worth at least $1,400,000 and formulate your strategy around that figure?

How you answer that question will speak volumes about your probability of success in this market.

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