When I was a kid, my parents (as all good parents do) did something that embarrassed me on a regular basis. My Dad’s particular recipe for mortification was his insistence on negotiating prices — everywhere and on everything. In fact, I distinctly remember trying to disappear once when he was trying to work the guy in the electronics department at Sears down on the price for our big-screen TV.
Fast forward 20 years and, like all good children, I have become my father’s daughter. In my daily shopping life, especially on big-ticket items, I consider the price-tag price akin to the speed limit: a good jumping off point for a discussion of what price I’m really going to pay. In fact, I distinctly remember having a flashback when I was working the Sears electronics guy down on my TV, too! It’s not that either my Dad or I are cheap; I prefer to look at it as though we’ve had a lifelong feedback loop to the effect that there is virtually always room to come down from the list price, which means you can spend less or buy more on any given Sunday. (Almost always, that is — my Wolf range was the one that got away.)
This perspective is probably owed in no small part to the fact that my Dad has been a prolific real estate investor for several decades, and that real estate is my field of work. I was sitting down orienting some new first-time homebuyer clients yesterday, and near the end of our discussion, they wanted my feedback on a couple of listings they’d seen online. More than once, I heard myself say, "That’s not the real price," referring to the list price. Interestingly enough, sometimes I went on to opine that the actual sale price of the property would undoubtedly be higher than that, other times lower.
It turns out that I’m almost always right about predicting how the eventual sale price will relate to the list price. How do I know if a place will sell for more or less than the list price, and what the differential will be? Experience, observation and educated intuition — the result of driving around with hundreds of buyers and showing thousands of houses over the years, hearing their impressions and what they are willing to pay for various location-property-aesthetic combinations. The indicators? Things like neighborhood, condition, staging and curb appeal — at this point, I can pretty much look at the sign in the lawn and, depending on who the listing office and agent are, tell you whether we’re going to see multiple offers and an over-asking sale price or not.
So, if the list price isn’t usually the real price, then what is it? I’ve been known to call it, tongue-in-cheek, a work of fiction. And sometimes, especially with short sales, they are. More often, though, the list price is a reflection of the mindset of the seller and/or the listing agent. In the worst cases, it reflects the seller’s ego (about their home, their upgrades and their taste) or hopes (about the money they need to pay the mortgage off and/or move up to their next place). In most of the cases where the actual price will be significantly higher than the list price, though, the list price reflects the listing agent’s expertise about how to drive multiple offers, and the seller’s rational, calculated intention to do what it will take to get top dollar for their home.
On occasion, the list price simply approximates the actual fair market value of the home, which, though nebulous in definition (i.e., what a qualified buyer on today’s market would be willing to pay for the home), can be rendered concrete by simply reality-checking the recent sale prices of similar homes in the same neighborhood.
But that’s only on occasion. …CONTINUED
Buyers who can master and flex their brains around these conceptualizations of list price have a much easier, less panicked-and-paralyzed, less torturous experience of figuring out what on earth to offer for their target homes. Offering way over asking to beat out a dozen other offers, when your Realtor’s analysis of the comparable sales shows that the property was underpriced to generate multiple offers in the first place, just isn’t the freak-out inducer it could have been.
When it’s time to make an offer, you look at the comps, find out how many other offers there are, decide how much that particular property is worth to you — within your mortgage approval range — and, if your Realtor has advised you that the norm in your market is a little back and forth, you make your offer accordingly.
If there are multiple offers, you make your best offer your first offer. Then you close your eyes, pray, light a candle, wish upon a star, or whatever it is you do when you really, really want something. And you go on about your business with no regrets because you did your best, and the house that’s meant to be yours, will be. Amen.
Sellers who get the concept that the list price can impact sale price in either direction, but that list price does not equal sale price, are empowered to better select their listing agents: The ones whose listings consistently sell quickly and for above the asking price might be the ones you want to work with. But if you do choose an agent with this sort of track record, don’t fight their pricing recommendation — remember, that’s the whole reason you chose them!
Unlike my Dad’s belief system that there’s always room to come down from the list price, in real estate sometimes the list price is the starting point for upward bidding, while in other times and other places it’s the starting point for discounts. I can’t overemphasize how important geographic differences and local standards of practices are in figuring out which direction from the list price the actual price is likely to be. But I can emphasize that, should you find yourself in the Sears TV section anytime in the near future, you might want to ask the guy what they’ve got in the back room.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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