Reader question: “I’ve been dipping my toe into my local housing market, planning to buy a home in the coming months. It seems like the asking and selling prices are all over the place, even though I’m looking at similar types of homes in the same zip code area. When I find a house I want to purchase, how do I compare the real estate asking price vs the offer amount? Is it best to offer a certain percentage of what the seller has asked for? Or is it a case-by-case kind of thing? (I may or may not be using a real estate agent, if that’s any hep.)”
It’s wise of you to distinguish between the asking price and the offer price. Many first-time home buyers think they should offer whatever the seller has asked for, but this isn’t always the best strategy.
Every seller is different when it comes to real estate pricing strategies. Some use agents while others sell by owner (FSBO). Some are realistic about local market conditions, while others have their heads in the clouds. Some base the asking price on comparable sales, which is reasonable. 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.
Because of these differences, you have to handle each home pricing scenario differently. You have to evaluate the asking price based on recent sales in the area. This is the key to making a smart offer. I’ll explain how to do this in a moment. But first, I want to clear up some of the terminology being used here…
Real Estate Lingo: Asking Price vs Offer vs Selling Price
Asking prices. Offer amount. Market value. Selling price. There’s no shortage of pricing lingo in the real estate world. It often leaves first-time home buyers scratching their heads in confusion. Here’s a mini glossary to help you keep these terms straight:
- Asking price: This the amount the seller is asking for the home, when listing it for sale. It is also referred to as the list or listing price, because it’s the amount the house is listed for in the Multiple Listing Service (MLS).
- Selling price: This is the amount at which the property actually sells. It is also referred to as the sale price. It may be higher, lower, or the same as the initial asking price, depending on what happens during the offer and negotiating stage.
- Market value: This is current value of a home based on local sales prices. Fair market value is driven by the forces of supply and demand, and these factors can vary from one local housing market to the next. That’s why similar homes in different real estate markets (cities) tend to have have different values.
- Offer amount: This is the amount the buyer has offered to pay. It is written into the purchase agreement and transmitted to the seller. The offer amount can change repeatedly during the course of negotiations, or the homeowner could accept the first offer presented. It varies.
Here’s the most important thing to remember about the difference between real estate asking prices vs offer amount vs the actual selling price: It is the local housing market that determines the current value of a home — not the seller. Smart sellers price their homes based on recent sales, in order to attract offers from market-savvy buyers. But not all homeowners behave this way. Some set their asking prices well above market value, and for a wide variety of reasons. As a home buyer, you must understand the difference between what the seller wants for the property, and what the property is truly worth in the current market.
Using Comps to Make a Smart Offer
You’ve probably heard the car-buying expression that says you should “never pay the sticker price.” There is a similar concept in real estate, but with a slight twist. It is this: The asking price and the true market value might be miles apart. You don’t know until you look at the comps.
Comparable sales, or “comps,” are similar homes that have sold recently in the same area as the house you’re considering. Similar, recent, and within same area — those are the three most important ingredients for a good comp. You want to know the selling price (a.k.a. sale price) of those similar properties. By looking at this data, you can begin to determine the market value of a particular house. Of course, you have to visit the subject home as well, to see if it offers value-adding features that the comps don’t have. But it all starts with pricing research.
It bears repeating: To distinguish between the real estate asking price vs the offer amount and realistic selling price, you have to start with comparable homes that have been sold recently. The more of this data you can collect, the easier it will be to make a reasonable offer.
Having been involved in many real estate transactions over the years, I can tell you that sellers are all over the place with their asking prices. Some are very realistic and based on recent sales in the area. Other sellers are delusional and seem to base their asking prices on esoteric mathematical formulas from some parallel universe. You’ll probably encounter both kinds during the course of your home search.
There are times when your offer amount should be close to the asking price, or even match it. And there are times when you have to offer less, due to the reality of the market, supply and demand, and comps. If a seller falls victim to wishful thinking and prices the house well above recently sold homes, then you should probably offer a lesser, more reasonable amount and back it up with sales data and selling prices. If you’re in a hot market where houses sell quickly, and the asking amount is reasonable, you might want to make a full-price offer to avoid losing the property to another buyer. It depends on the situation.
An Experienced Agents is Your Best Asset
Are you currently working with a real estate agent? If not, you should seriously consider it. As a home buyer, there’s a good chance you won’t pay anything out of pocket for the agent’s services. It’s usually the seller who pays the commission(s). An experienced agent can help you evaluate the asking price vs the offer amount, by using selling-price data from recent home sales in the area.
Remember, every seller is different. Some establish realistic listing / asking prices based on recent sales trends. They understand the concept of supply and demand, as it affects their pricing. Other sellers have their heads in the clouds. So you have to thoroughly research each home you are considering, by comparing them to the comps. It’s tedious and time-consuming, but necessary. A good agent can help you do it more efficiently, and probably more accurately as well.
Learn more: This article explains the difference between the real estate list price, the offer amount, fair market value, and selling price. If you would like to learn more about this topic, do a topic search in the box provided at the top of this page. We have dozens of home-buying articles available on our website, with new ones added every day!