What Do Asking Prices Even Mean Anymore?
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Asking prices used to be fairly straightforward. If someone wanted to sell their home at a certain price, that's the number they listed it for—no clever strategies or gimmicks. Asking prices were based on comps (the price that comparable houses in the neighborhood recently sold for) and were intended to get the seller as much money as possible while remaining reasonable enough to lure buyers. These days, however, asking prices are all over the map—often shockingly high and sometimes even curiously low—and it's leaving prospective buyers stressed and confused.
Why Asking Prices Have Gone Rogue
A cursory glance at listings on Zillow can lead to some serious sticker shock, regardless of where you live. Suburbs, quaint country towns, not-so-quaint country towns, gated communities, cities—they're all expensive. This can be attributed to Covid, which created more work-from-wherever opportunities. Free from the constraints of office jobs, people began flocking to suburbs, as well as more far-flung destinations, driving up demand. The real estate agents we spoke to in Florida, Texas, and California say that frenzy has died down a bit—the out-of-towners who wanted to move to these balmy locales for a better lifestyle and the locals who wanted a house that offered work-from-home amenities (office space, a pool, etc.) have probably bought a house by now—but demand remains very high. The suburbs of major metropolitan areas like New York City are still seeing record-high levels of demand as hordes of first-time buyers continue moving out.
Those who are lucky enough to already be living in desirable places don't want to sell. (Partly because moving means having to pay through the roof for another house, and, well, partly because why would they want to?) New Canaan, Connecticut, a leafy, affluent suburb of New York City, is a good example of this. "We have great schools, a picturesque downtown, and a strong sense of community. When people move here, they stay," Cindy Cash, a real estate agent in William Raveis's New Canaan office, says. But the biggest thing preventing homeowners from selling is interest rates. If you have a cozy, low pre-Covid interest rate, it's probably cheaper to stay in your house than to downsize to a smaller one or even a condo.
The result: House sales all over the country are slowing to a crawl. In fact, according to data from the National Association of Realtors, house sales dropped by 18.7 percent between 2022 and 2023. With so few houses selling, accurate comps can be hard to come by. So setting an asking price is becoming more subjective.
Common Asking Price Strategies
"Asking prices are definitely more of a strategy now," says Richard Welch, a real estate agent with Compass in San Francisco. "You decide what you want to get for the house and work backward toward that number."
A High—or Low—Price Tag
If you want to land at $2 million, you can set an asking price of $2.1 million and hope someone loves your house enough to offer at least $2 million. Or you can price it slightly lower (like, say, $1.9) with the expectation that people will get swept up in the excitement of getting a deal and submit offers for over $1.9…and you'll end up at $2 million. "I usually price a house 10 percent less than where I think the house will sell," says Welch.
Bidding War Pricing
Some sellers are even pricing their houses way below market value to create bidding war situations. (This likely will come as no surprise to you if you're been in the market for a new home in the past few years.) Bidding wars occur when a house is flooded with offers and buyers are asked to provide their best bid (referred to as the "best and final offer"). "It's not uncommon for houses to go $50K to $200K over asking—if not more," says Cash. This is risky, but if your house is in a great location and in good condition, it may be worth a shot.
Pocket Listings
Some sellers in tony locations don't even bother listing their houses at all. Kate Haueisen, a real estate agent at Florida Living Realty in Hobe Sound, Florida, points out that in South Florida, many sellers are opting for what are called pocket listings. In this scenario, a seller's broker quietly gives a select group of other agents in their office a heads up that they have a client who may be willing to sell. "A lot of people in Florida who want to sell think, But where am I going to go? Everything is so expensive right now. This gives a seller more control and flexibility," says Haueisen. Plus, you don't have strangers stalking your house online, and you don't have to deal with non-serious buyers traipsing through your house. According to Meredith Ferrell, a real estate agent with the Meredith Ferrell Group of Compass in Dallas, off-market listings are commonplace in Dallas too. "Thirty-seven percent of my team's sales last year were off-market," she says.
Market-Testing Pricing
When you see a house priced obnoxiously high, it may indicate that the owner isn't really that serious about selling. Sellers who don't need to move may test the market by slapping a huge price tag on their house to see if some desperate person who has been outbid on other houses or just had another baby and needs out of their one-bedroom apartment will pay the asking price. Occasionally people do. (Although this is not happening as often as it did on the heels of Covid.) If no one bites, they just take their house off the market and stay put.
The Takeaway for Buyers
It can be frustrating to navigate these amorphous and erratic asking prices. "But things are a little calmer now, and it has allowed buyers to be more thoughtful and less impulsive," Ferrell says. "If you lose out on a house, another one will come up, and that wasn't necessarily the case a couple of years ago."
To land the house of your dreams, or at least a house you really like, it's important to do your homework. The more you know about the housing market, the less likely you will be to fall prey to someone's asking price shenanigans. Second, hire a seasoned and well-connected broker in the town you want to move to. They'll not only know the area (the best parts of town to live in, zoning issues, upcoming municipal projects, school district information, and so on), but they'll also be more plugged into the local real estate community and privy to off-market listings that you otherwise wouldn't know about.
When it comes to lower-than-the-norm asking prices, Cash advises clients not to get too emotionally invested and to stay optimistic. "Everyone gets so wrapped up in the process that they can feel a lot of pressure and feel desperate. I always encourage people to take a step back, take a breath, and figure out what is really best for them." If you really love a house that has multiple offers, make a strong offer. Who knows? It may just work out. (You can make your offer stand out by paying all cash, dropping the mortgage contingency, or being flexible about closing dates, advises Cash.) It's important to remember that you never really know how many people are participating in a bidding war. The seller's broker may say "multiple offers," but that could just mean they have two offers, not 10.
The same advice applies to houses that are priced too high: If you want the house, throw out a number. "It never hurts to make a (reasonable) offer. You never know what can happen in this market," says Haueisen. While buyers understandably may worry about overpaying, it's less of a concern right now because homes are holding their value and there's no change on the horizon; just don't overlook red flags (things like a funky layout, a dodgy neighborhood, or being miles from the closest grocery store) that may affect your house's potential worth. "The best thing a buyer can do is find a house in a great location. That will protect it from market fluctuations and help it hold onto its value," Ferrell says.
The Takeaway for Sellers
Too high a price can turn off informed buyers and cause your house to languish on the market and grow stale (buyers don't like houses that sit around). Pricing a house really low is also a bit of a gamble because if you don't get multiple offers, you'll be stuck selling at the low price you listed it for. "Plus, you really don’t want 20 offers. It's better to price a house right and get five really good offers," says Welch. Pocket listings have their perks, but you may miss out on random buyers willing to pay big bucks.
All of the real estate agents we spoke to agree the best strategy is always to price a house around market value—which isn't bad these days considering market value is likely a lot more than what you paid for your house several years ago. But it's still your call. "I always tell my sellers, at the end of the day, it's your house and you have the final say on asking price," says Cash.
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