We always hear stories about homes that sell way over the asking price.
Sometimes these stories are so sensational they make the six o’clock news. But how does real estate pricing work? Are homes selling for 30% over ask?
In short, yes, but deception is at work, and I’d like to explain why.
When a REALTOR® prices a home, they analyze recently sold homes in the neighbourhood. They can usually come up with a pretty clear understanding of what a home should sell for based on past sales.
The amount of money that comparable homes are selling for in the area is called fair market value. Fair market value is ultimately what a home should sell for.
When a real estate agent creates a list price, their strategy could include pricing the home lower than fair market value. This is done to generate buzz and interest in the house. If they generate enough interest, they put their clients in an advantageous position. This position is multiple offers.
This strategy depends heavily on the type of market the home is in. This strategy works if the market is a ‘seller’s market,’ and homes sell fast. If the market is a ‘buyer’s market’ and houses don’t sell quickly, this strategy could place the home’s perceived value at risk.
When agents use this strategy in the right market, they almost always achieve ‘over ask’ if their price is under the fair market value. If a real estate agent prices something too high in a seller’s market, the listing could sit for an extended period and become stale.
It’s normal for buyers to feel as if they’ve overpaid when they hear “SOLD 25% OVER ASK”, but in reality, they’ve usually paid the fair market value for the home or slightly above it to win during multiple offers.
Real estate pricing is an art form that shifts constantly. Seasoned agents will understand and adjust their strategy to create the best possible outcome for their clients when the market turns even slightly.