How important is the asking price of a home?

The asking price is "more important" for sellers than buyers in the sense that "good" initial asking prices are producing "very good" results recently, and "bad" asking prices are not faring nearly as well. There's a thread recently by an SE'er who listened to his/her brokers advice to price close to the bone and seemed to get a good and fast deal.

Indeed, several sellers have taken the leap of faith to price even below market, creating lots of traffic and interest resulting in mini bidding wars.

Thus, very quickly and efficiently they were able to bring the price of the property to its market value.

It's not easy, though, to bridge that psychological gap between buyers needing to feel like they got a deal versus having them at or above ask.

I happen to put a significant mount of value in the initial ask price. Unfortunately, this has worked to my detriment. In a down market, I have always thought that it was a complete waste of time to bid what I thought was the right price when the initial ask was almost double what I thought was correct. Well, in the last 2 1/2 years I have only seen 2 apts trade that I definately would have bought. I would have paid more than they actually traded for, the problem was that I never thought they would have traded at that big of discount to last ask. If they had priced it closer to reality, they would have got a better price.

Patient09, it's an interesting predicament from a seller's standpoint. On one hand, they want to move the property as quickly as possible and therefore would be happy to price a the price they actually need to get. On another hand, buyers want a discount - they want to feel like they won something, like they are getting something out of the transaction.

Coming off of the frozen winter months where buyers were placing offers at 40% below ask, many sellers feel they have to price in at least a 10-20% cushion. This happens first because they think "you never know; maybe someone will bite at that price", and second because if buyers come in at 10-15% below ask as their first bid, at least they cover their reserve price.

Lastly, it's important to note, to your point, that you never know what a property will sell for unless you're in the game ... i.e. buyers need to place offers and negotiate; that's the only way to peel the layers of opacity and get somewhere ... in a disciplined way, of course.

Honeycrisp, I'm not sure why you feel that buyers (like myself) need to feel that they are getting a deal on an apartment. If a buyer places a certain value on an apartment and they can purchase the apartment at or around that price, wouldn't that be enough for the buyer? Do you feel that is what the typical buyer is looking for in this market- a bargain?
Like patient09, I also give a great deal of value to the initial asking price of an apartment because that is where the seller I'm assuming wants to start his/her negotiation process and if my offer is much below the ask, it's been my experience that the seller and I are too far apart in price for a deal to take place.

lobster - of course you want to feel you've gotten a good deal - wouldn't make a difference if the asking price was totally was totally reasonable - you would think that it should be 2% less.,

Lobster - I love your comment! It is logical and your position seems "disciplined". I can tell you I've seen many buyers walk away because they couldn't fathom paying "close to ask". I do believe buyers still want a "deal", yes.
Unfortunately, I think many still anchor themselves to the ask, not as a starting point for the seller but a material reference point for the buyer. I would be very happy if buyer psychology were to shift towards your perspective.
A recent discussion on Urban Digs noted how some buyers would in no way consider entering a "bidding war" no matter how low the initial price. Logic would say that buyers would have their valuation and they'd be willing to bid up to that price, then walk away. That said, any time human emotion gets involved, logic takes a bit of a hit.

Not necessarily for me, but probably for most buyers.

Thanks Honeycrisp for your clarification and my above comment was directed towards ph41 although I forget to indicate so in my comment. Have a good evening both of you.

Honeycrisp, since you seem be quite knowledgeable about the psychology of buyers and sellers, how would you recommend that a buyer proceed if he/she is interested in purchasing an apartment that is listed at a significantly higher price than the buyer is willing to pay (assuming that the buyer evaluation is closer to the true market price than that of the seller)? Would you recommend that the buyer keep increasing the offer until reaching the price that the buyer is willing to pay and then walk away if the final offer is refused? Or would you recommend that the buyer make an initial offer or two and then walk away for a while before increasing the offer in a few weeks or months if the property is still on the market? What approach is the best when dealing with a seller whose property is listed at a significantly higher price than the market suggests it should be?

"A recent discussion on Urban Digs noted how some buyers would in no way consider entering a "bidding war" no matter how low the initial price."

In my experience, the vast majority of buyers who have uttered the words "I won't get into a bidding war" immediately follow with whatever action is MOST likely to cause a bidding war.

Lobster - first, the "true market price" is a very amorphous thing if you don't have a closing price; that said, it's always a case by case (not helpful, i know) in terms of how long the apt has been on the market, how much true competition the property has and at what price, and, importantly, the buyer situation. (i.e. how much do you love the place, how much do you need to move, what alternatives do you have, etc.) If the buyer is truly willing to pay above market then, to a large degree, that's what defines market.

Now ... let's get you SOME sort of answer other than "it depends" :) In my experience, too many incremental increases over time, particularly if you're so far off, serve to diminish the bargaining power of the buyer and the credibility of the offers made. If the seller nudges only barely in your direction, then I would make 1-2 offers and let the situation breathe. When coming back into the game, I would make a last and final (whatever that is) and stay detached from the outcome - that always provides the greatest leverage, anyway. Many situational variables could sway this strategy, though.

Of course, no matter what brokers or buyers may try to do to convince the seller to lower his/her price, the market is not always efficient, especially in the short term and especially in times of low volume.

Honeycrisp, how can a buyer determine how much true competition an apartment has? Can you and should you believe a seller's broker when they tell a buyer that there is a higher counteroffer than the offer that you made? Thanks for your analysis re: incremental increases- very helpful.

The asking price is key because I only look at apartments that are priced within my price range. Anything that falls out of the price range that I would be comfortable paying never gets considered. For example, a property listed at 2 million that would accept an offer of 1.7 will never be considered by me. So I think it is important that the seller price close to what they are expecting to sell for, otherwise they are losing potential buyers.

As a buyer, asking price is important becasue of the search engines. I always specify the range that I am looking at. I do stretch it up a bit to see if there is anything that is (what I feel) is slightly overpriced. But if it is too far overpriced, then I don't feel it is even worth the hassle of trying and coming up against unrealistic (once again in my buyer's opinion) sellers. (I base my offering price off of comps and Streeteasy information.)

I will admit that I have have fallen prey to the bidding x% below ask when I am comtemplating what to bid. But common sense (and my spreadsheets) take over before I make an offer.

Lobster: the competition comes from comps and seeing how many true and available comparable properties there are (i.e. do they all have the same outdoor space, or views, etc.). Comps on paper are very different than actually seeing the properties and truly comparing them. The question to be asked is: are these two or three units all real choices considering the search parameters?

As for believing the seller's broker - I HATE not knowing - and the truth is, you can never know. And then you're stuck playing the game without proof for the most part. On the selling side, I would NEVER make up an offer; I have an allergic reaction to such shadyness.

We have made several offers on various apartments and every one of them(excluding new developments) has been met with the response "we have another offer on the table". I think it is a given reply that brokers learn in Real Estate 101. In one case it was true, the rest I doubt. Homey don't play dat!

Agree with you NYRENewbie. Have heard that (we have another offer) and then gone on to see the listing linger on the market for many more months until it goes to rental or delisted.

Something to keep in mind is that and offer may well be on the table ... but at 20% below ask ... doesn't mean it's a viable offer.

True, but is it a viable asking price if it is 20% over comps in the same building?

Honeycrisp, if the seller's broker tells a buyer that there is another higher offer than the one made by the buyer, how likely it is that the seller's broker will specify the amount of the higher offer to the buyer? If the seller's broker won't state the amount of the higher offer, can the buyer assume that there is no higher offer and it's just a tactic. Can I as a buyer or through my own broker demand to know the amount of the higher offer?

Honeycrisp, if the seller's broker tells a buyer that there is another higher offer than the one made by the buyer, how likely it is that the seller's broker will specify the amount of the higher offer to the buyer? If the seller's broker won't state the amount of the higher offer, can the buyer assume that there is no higher offer and it's just a tactic. Can I as a buyer or through my own broker demand to know the amount of the higher offer?

Hurting, I've had the same experience as you have with the listing just sitting on the market and never going into contact although the seller's broker stated that it was just about to go into contract at a much higher price that we offered.

Hurting, I've had the same experience as you have with the listing just sitting on the market and never going into contact although the seller's broker stated that it was just about to go into contract at a much higher price that we offered.

Hurting, I've had the same experience as you have with the listing just sitting on the market and never going into contact although the seller's broker stated that it was just about to go into contract at a much higher price that we offered.

Sorry for the repeated messages. The send key was delayed and I must have hit it too many times.

Lobster: Sometimes the seller's broker can keep cards close to the table and will provide guidance as to where you need to come in versus the other offer. It's rare that you will be told "x is the offer" ... rather, "you need to come in at a number starting with y to be competitive". If the other broker's lying to you, they will do so regardless: with or without a concrete number. So I wouldn't say that's an indicator.

I can tell you I've been on both sides. When representing the seller, there's little I can do to convince other interested buyers that I actually do have one or several offers on the table. All I can tell them is to place last and final offers based on their valuations and comfort levels. The reason my partner and I don't share the actual numbers of the offer is because it sets a precedence and we are, after all, representing our seller's best interests (which is why having a good buyer's broker is always important, by the way).

Here's an example. Let's say the asking price is $1.2M. We have an offer at $950k. Other interested buyers may well be willing and comfortable to offer $1.1M. If we share the $950k, then they have no incentive to go much above $950k. It becomes like a game of "the price is right", dragging out the process for all.

honeycrisp - if you "shared" the offer info, I would think you are definitely failing in your fiduciary responsibility to your employer, the seller, to get the best possible price for the property.

Giving information on other offers would sort of be like playing poker with your hand shown to the other players at the table.

Honeycrisp,in your example, the numbers between the buyer and seller seem quite far apart, even the $1.1M from the $950K. In such an example, what is the likelihood that the buyer and seller would reach a deal assuming that the other $1.1M buyer falls out of contention for some reason. Can a buyer at around $1M and a seller listing at $1.2M ever really reach an agreement assuming that the seller has no urgent need to sell, in your experience? I realize that this is a broad hypothetical but the numbers seem to be representative of cases in today's market?

I think this example would have been more reflective of the last winter/spring. I would say that a lot of bidding today starts at 10% below ask ... that IS, of course, if they anchor against asking price (which is why I started this discussion).

That said, NOTHING tends to happen if there's no need to sell, not in this market. I would say, though, that $1.1M and $950k is bridgable.

... Should have added this:
http://theapplepeeled.com/buyers/slip-slidin-away-why-the-discount-between-asking-and-closing-prices-has-shrunk/

It talks to this very discussion on why bid/ask spreads have been shrinking, at least until recently (full disclosure: yes, I wrote it)

Honeycrisp, since you seem to be a broker, are you saying that it's acceptable or common for a broker to make up/suggest a viable offer (when in fact there is no acceptable offer) to elicit a "competing" bid? Just trying to get a sense of whether that's considered ethical, because that might explain why some many buyers are inured to that tactic.

Kiss - that is absolutely NOT considered ethical ... and yet I do believe it happens, unfortunately, for the same reasons buyers do: there is little transparency around offers and little incentive (perhaps even violating fiduciary duties to the seller) to provide that transparency. Opaque situations often yield shady behaviors.

My usual response to requests from buyers or their brokers as to what other offers are is to say "well, I'm pretty sure you don't want me discussing YOUR offer with the other bidders, so I make a general practice to treat everyone equally and not discuss any buyer's bids with any others". However, in the end, I think it is the seller's call: if the seller wants me to tell buyer B what buyer A's offer is and that if they come in $10,000 higher the property is theirs, that's what I'm gonna do.

____________________

David Goldsmith
DG Neary Realty

Honeycrisp, You can correct me if I'm wrong but it seems to me that the only guidance (other than one's own evaluation and that of your broker) that a buyer has in terms of deciding what is the possible selling price for an apartment is 1)the initial listing price and any lower counteroffers made by the seller and 2) recent comps, if any, in the building and similiar neighborhood buildings. If there are no recent building comps, I've found that a buyer may have a difficult time making an argument to the seller that a lower price is more in line with the market. Often it seems that sellers differentiate their own building from neighboring buildings and don't get guidance from those list prices. For a small building, I can see that it might be difficult to come to a sale in some cases. Also how patient are sellers typically? Do you find that sellers anticipate that it could take up to a year or longer to sell an apartment (another very broad question, I know)?

I'm curious, Lobster, what other kind of guidance did you have in mind? (It's a genuine question rather than a rhetorical or snippy one) Guidance of the broker (or buyer's own evaluation) can be relatively complex, depending on inventory, the condition of the apartment, true comps, etc.

That said, "deciding what is the possible price" implies the seller and his/her agenda in the equation, which is altogether different than a perceived market value. Yes, it is tough to convince sellers to get in line with market pricing ... everything gets down to need to sell. The more time sellers have, the higher they're willing to price their property (not a shocker, really).

In addition, few sellers actually detach from the property after it's put on the market. What I mean is that we usually advise sellers to think of their property as a product not a possession. "It's not yours, anymore." We do this because that emotional attachment usually gets in the way of sellers' more effective behaviors of decluttering, repainting, etc. They're attached to the furniture, the paint, and ... the price, of course. The patience per seller varies dramatically, person by person. There is an ongoing tension between getting the price they want and the urgency to sell.

Thank you for your many answers to my too many questions. By the word guidance, I just meant the various sources of information that a buyer has at his/her disposal to make the best estimate of the price that a seller would really sell his/her apartment - the buyer's and their broker's own evaluation possibly, the seller's asking price and any building comps. The situation that I was thinking of is one in which a buyer is interested in an apartment in a building with less than 30-40 units and in that case, there may be no recent sales in the building. For those types of buildings, I find it difficult to assess at which price the seller would actually sell the apartment. It seems much easier to determine the likely sale price for a unit in a larger building. But what I've learned from you and from others is that I need to place my own evaluation on the unit since I often can't determine what the seller is thinking. Thank you for your endless patience and I will definitely read your columns from now on.

Lobster - not to sound flip (though it will) make your offer and see if the seller bites. If not, walk away.

One other thing - if you've garnered anything from all the posts on SE - comps may indicated what previous sales lead one to believe is the current "correct" selling price for any given apartment.

However, you have also seen that not all sellers agree with what the market has determined the "correct" price for their apartment to be.

You, as the buyer, actually determine market - go from there. Do you actually believe that all sellers dtermine their asking price from checking out SE?

You're very sweet, lobster. Thank you.

Indeed, trying to get into the mind of the seller is a losing proposition, I believe (personal opinion, here). The more you try to do so, the more personal and internalized the entire process becomes.

On the other hand, the more disciplined you can be in your approach, the more sound a decision you are likely to make about your purchase. (I say this because I've seen many buyers get "offended", "angry", "incensed" over seller reactions and what "they must be thinking", which only hurts their stance.)

At the risk of a shameless plug, I invite you to visit my blog (www.theapplepeeled.com). Hopefully you will find my posts there just as helpful. Your comments may also help advance others' thinking or put into words what others may not be able to do.