The asking price is true, but it’s also an illusion.
If you are offered a job and negotiate a raise of 10% over what was originally offered, that’s good, but it has nothing at all to do with what you’re actually worth.
If you buy a house for 15% over asking price, it doesn’t mean you overpaid.
The asking price is a signal, a way to message expectations and begin a negotiation. It’s simply a guess about the future, made by the person who goes first. It can anchor our thinking, but if we’re not careful, it can be an anchor that also drags us down.
The Asking Price
By Seth Godin
Seth Godin writes one of the most popular blogs in the world and has written 20 best-selling books. I’m one of the 1,000,000 people who read his daily blog, which is usually about business and marketing. This one had a rare reference to real estate and really inspired my thinking.
Just last week, an agent in my office listed a condominium that, in my opinion, was priced 25% below market value. It was perfect for my buyer. I explained my opinion of the value to my client and reviewed the comparable sales. We wrote an offer about 10% above the asking price. After 3 days, there were 11 offers. We increased our offer and my client was the lucky winning bidder. He is purchasing the property at about 25% over the asking price. Is he overpaying?
Last month, a few days before one of my listings went live on the MLS, the owner was concerned we had underpriced it. I explained how I arrived at the list price but assured him that if it was underpriced, the market would tell us its true value. Within 2 days, we received 3 offers, all 5% over the asking price. Is the winning buyer overpaying?
It is very important to understand the difference between the asking price and value. I love Seth’s notion about asking price being an “anchor” and a “starting point.” Working with an experienced agent who knows the difference between list price and value is the key to succeeding in today’s competitive real estate market.