Housing & Mortgage
Fewer Homebuyers Stuck Paying Above the Asking Price
Forecast sees growing discounts in many U.S. real estate markets
For homebuyers and sellers, the original list price is the conversation starter, yet rarely the final word – only about 15% of homes in the largest metro areas sold for the seller’s original asking price during 2019’s second quarter, according to real estate data firm CoreLogic.
Discounted sale prices occurred on 61% of homes sold, Corelogic reported, up from 57% in late 2018.
Tight markets subject to bidding wars and sale prices above the ask, of course, get the most attention these days. And those conditions continue, to varying degrees, in San Francisco. Seattle, Minneapolis, Denver, Boston, Los Angeles and Washington D.C., according to Corelogic data.
But sale prices below the list price were common in Miami (80% of sales below list), Chicago and Houston (70%) and other major markets. Buyers and sellers need to be aware of the new reality.
Another real estate company, Knock.com, which helps people buy and sell with bridge financing, expects discounts to list price to increase in 2019’s fourth quarter. Two in three home sales in the quarter will come in below the list price, and the average discount will be near 4%, Knock estimates.
Knock predicts that more than 80% of home sales in Miami will come in under the list price, and the average discount will be near 6%. In Chicago, Houston, New Orleans and Hartford, at least 75% of home sales are expected to be at a final price that is below the original list price. The average discount in those markets is forecast to be about 5%.
The cause isn’t a soft market. Of the aforementioned areas, only Chicago price gains have failed to keep pace with inflation over the past year. Some of the markets where buyers are enjoying strong negotiating leverage are also among the best for first-time homebuyers.
Whether you are a seller setting your list price, or a buyer readying a bid, understanding the current relationship between list price and final sale price in your market — and in your price range — is key to walking away with a deal you feel good about.
This is a basic analysis every agent should provide. Recent home sale prices for “comparable” nearby homes is an important metric, but a good agent will also provide information on how that price compares to the original list price.
As a seller, your must-have price needs to be rooted in current market conditions. What you paid for your home, while intensely important to you, has absolutely no bearing for a buyer. Yet many home sellers are victims of their own “anchoring” bias. You paid X for the house and won’t sell unless you can get X plus. Or six months ago, your neighbor sold for Y so you are determined to get at least Y. In reality, what you will get will reflect current market conditions. What is the most recent comparable sale price? How is the local economy? Where are mortgage rates?
As a buyer, knowing the list-to-final price ratio is a valuable piece of negotiating intel. If a home is reasonably priced and 5% discounts are common, you might make a first and final offer with that discount. Or if negotiations typically go another round in your area, an offer at a 7%-to-8% discount gives the seller room to negotiate back toward a 5% markdown.
A 2015 academic paper suggests an intriguing pricing strategy for sellers. Once you get close to deciding on your list price, avoid lots of zeros in the actual list price you settle on. In an experiment, researchers found that when a list price was precise rather than rounded (and slightly higher than the rounded price) it triggered the least aggressive offers from buyers.
For example, if you decide $300,000 is the right list price, the research suggests that pricing at a precise number such as $301,750 will get you a higher offer (and ultimate sale price) than if you start the negotiation at the round figure of $300,000. Of course, if you are planning on buying another home, you can use that intel to your advantage; if the list is a round number, don’t be lulled into making too high an initial offer.