In the past twelve months, about two-thirds of single-family houses listed for under $1 million that have sold in the greater Portland metro went for over their asking price. The remaining third was about evenly split between those that sold at list and those that sold under. Distill all that down, and only about one in seven houses that sold went for the number on the price tag.
It would be an odd way to shop if you walked into Target and the price tags were merely suggestions, wouldn’t it? We’ve long accepted though that the process of buying houses is more akin to a silent auction, and there are good reasons why it’ll stay that way. That being said, when you’re out there house hunting and keep seeing houses sell for incredible amounts over the asking price, it gets pretty frustrating and might make you wonder how they arrived at that asking price in the first place, and how are you supposed to navigate this process.
So how did they arrive at that asking price anyway? The goal, of course, is obvious: sell the house for as much as you can. The path to getting there does not necessarily include pricing the house at or even near its fair-market-value, assuming anyone even knows what that magic number is (spoiler: they don’t). It’s more of a marketing strategy designed to get the most potential buyers to see it, and the greatest amount of qualified people to offer on it. From there it’s in the free market’s hands, and we’ve been seeing what kind of a beast the free market can be when demand is high and supply is low.
Buyers and their agents have to use the information available and figure out what the house will ultimately sell for, so they can decide if it’s worth offering on. That’s the game at this stage of the process, A to Z. When analytically-minded people like myself see a problem like this, we want to make sense of it with data. There is plenty of data to work with, since even in these times of low inventory there are still thousands of houses being sold. One data point sticks out: in that pool of sub-million dollar single-family houses we’re working with (sorry condo-dwellers, millionaires, and millionaire condo-dwellers) that sold over asking, the difference between the average asking price and the average sales price has been pretty consistent over the last year, no matter what the asking price was:
Alright, so your problems are solved- just find a house you like, offer 6.33% over the asking price to beat out the other guy and BOOM you’re done, here’s your keys! Nope. Relying too much on those numbers when attempting to value a house would be a classic mistake of applying macro trends to micro situations. 15% of the houses that sold over asking did so at more than double that 6.32% number above. In real life that might mean you just offered $35k less than the next guy, and in that situation what you have is not a house.
So if asking price by itself isn’t a reliable data point since houses usually don’t sell for asking, and the difference from asking appears steady but really has too much variance baked into it, how do we solve this problem? Real estate is hyperlocal and in a sense every house is its own market, with an unknowable amount of tangible and intangible characteristics that contribute to its value. To further complicate matters, the relative value of those characteristics will be all over the place. One man’s Agreeable Gray is another man’s disagreeable gray, and so on. To get to what we think the house is going to sell for we’re going to use some combination of comparable sales data, personal preference, anecdotal evidence, gossip, and possibly some witchcraft. But mostly the comps.
If you have nothing else to go on aside from asking price- perhaps the listing agent didn’t let slip that the highest offer so far is 15% over ask- you go to the comps. Occasionally, you’ll find that the identical house down the street with the same pink flamingo in the yard sold last week and there you go, great piece of data. It usually is not that simple. Instead, your real estate agent will (hopefully) get deep into the weeds of recent nearby sales, correct for which kitchens have been updated with subway tile backsplash and which ones are time capsules from the Reagan administration, and adjust for however the proverbial wind has been blowing that month/week/day/hour. You then decide what makes sense to you (do you want to pay a premium for a subway tile backsplash or because it’s near Trader Joe’s? Because someone else might). Then, offer accordingly.
I see two big goals in house hunting: get a house (duh), and don’t tear all of your hair out during the process. When you’re constantly seeing houses sell for large amounts over asking, it’s easy to get frustrated and lose faith in the process. Most things make sense though when you take that asking price and do your level best to disregard it. I know it’s tough, because you’re asking your mind to ignore something that’s always front and center. It might take some true zen to pull off. And yes, you will still see some things that make you shake your head in disbelief. However, when you see a house with a $500k asking price sell for $600k but YOU valued it at $575k, it takes some of the crazy away. Not all of it, but enough to not want to tear your hair out and that’s a victory in and of itself.
About me: I am a licensed Realtor in the state of Oregon. For business inquiries I can be emailed at eli.cotham@eleetere.com or found on the web at eliknowsrealestate.com.
