In real estate, there are many terms used to describe to the price of property on the market; from ask price to bid price, offer price and asking price. In some countries, although they may mean roughly the same thing, there are actual differences in the final sum paid.
Simply put, an asking price is the amount a seller states that he or she is willing to accept for the sale of a property. A stated asking price may be termed by the seller as ‘firm’ or ‘negotiable’. A firm asking price indicates that it is final and not subject to change, while a negotiable asking price means the amount is open to further haggling.
In some markets, the terms ‘bid’ and ‘ask’ price are common, and are used in contrast to each other. The difference in the bid price and the ask price is referred to as the ‘spread’.
Besides the real estate market, asking price can be used in other sectors ranging from stock exchange to mutual funds, commodity sales and auctions.
The meaning in each of these sectors vary too. For example, in the commodities sector, an asking price is the lowest amount a seller is willing to agree for that commodity, while in an auction, the asking price is the reservation price. This means, although they can accept higher offers, the asking price is the lowest limit.
When buying a house, one of the things people consider is comparing the real estate asking price to the offer price. More experienced buyers prefer to distinguish between both to aid them in negotiations.
Experienced real estate agents usually maintain that first-time buyers can get the best deals without offering the exact amount the seller asks for. When it comes to real estate deals, every seller has their unique pricing strategy. While some work with agents, others sell by owner (themselves). Again, while some work with the realities of the local market, other sellers set-up prices regardless of them.
Some sellers base their asking price on comparable sales in the area, while others list it based on the amount they need to get out of the transaction, that is to pay off an outstanding mortgage loan.
Due to the differences in these situations, buyers have to treat each situation on a case-by-case basis. This involves assessing the asking price according to a recent sale in the same area. This helps potential buyers make a more informed decision.
The real estate market has its lingo. While they help facilitate the deals in some cases. Newcomers to the market can be lost in translation. Some terms particularly leave first-time buyers nonplussed about the next step to take. The following is an explanation of the common sales terms:
This is the price the seller is asking for the property when it is listed for sale on the market. It is also called the list or listing price because the house is listed for that price in the Multiple Listing Service.
This is the price at which the house actually sells for. It may also be referred to as the sale price. It could be higher, lower or the same as the original asking price, depending on the events that occurred at the offer and negotiation phase.
The market value is the current value of a property as determined by the price of surrounding properties sold within a given period. The figure is driven by market forces (demand and supply), and may vary from one local housing market to another. This is responsible for identical properties in different markets having contrasting values.
An offer price is the amount a potential buyer has offer to pay for a house. It is documented into a purchase contract and given to the seller. The offer amount is subject to changing continually during the course of negotiations. There are many reasons for this; the buyer may receive better offers elsewhere or discover some repairs needed on the property. The homeowner has the right to refuse or accept the buyers offer.
When a buyer’s offer is in line with a seller’s asking price, a match is said to occur and both parties can proceed to the completion of agreements.
It is extremely important to remember that it is the local housing market that sets the current value of a property and not the seller. A savvy seller fixes a price on their property, based on the recent sale of similar properties in the area. This attracts other astute buyers or property investors.
Not every seller will list their property this way. While some sellers set their asking price significantly higher than the market value, some may be lower. It is advisable for first-time buyers to research the market extensively to avoid taking the wrong deal.
An inflated price could be a sign of a low supply market, and a price much lower than market value could be indicative of undesirable issues with the property.
Potential buyers looking to make the best deal on a property are should be able to tell the difference between what the seller wants and the actual market value of the home.
Every house on sale has its real market value and asking price. Depending on a potential buyer’s budget and knowledge of the market, they can make an offer both parties satisfactory to both parties.
One of the ideal methods of doing this is a comparable research on the value of other houses in the neighbourhood. Comparable sales, otherwise known as “comps” are similar homes in the same area which have only recently been sold. It is especially informative to use recent “comps” because they provide a more accurate representation of the market value.
Three qualities which are important in “comp” research are: similar, recent and same neighbourhood. A comparison of the selling prices of multiple comps in an area will guarantee a good match between the seller’s asking price and a buyer’s offer price.
After a price match has been met, a solicitor oversees the completion and exchange of contracts between both parties.