Original Source: Asking Price Vs. Selling Price
Often when I'm writing up statistics about specific neighborhoods, I will talk about the difference between asking and selling prices, usually in a % format. While absorption rates tell you about inventory and the speed with which things are selling, the spread between the asking and selling price lets you know about the mental health of the real estate market. A really large spread signals a disconnect between reality and fantasy, while a smaller spread indicates an understanding of current values and market conditions. While it's hard to pinpoint the peak of the housing bust (some would say we haven't seen it yet), for now the end of 2008/early 2009 seems to be the winner (rather, the loser!) for our close-in DC market. For comparison purposes, let's take a look at three very different markets. In this case, I'll be using East Bethesda as my little microcosm.
For starters, let's delve into the crazy peak of the market in East Bethesda, Spring 2005 (specifically April 1 - June 30). During this time:
- 17 homes sold and settled
- The average original asking price was $806,235
- The average final sales price was <!--more-->$835,479
- The average house sold for 1.035% of the asking price
- Things were looking pretty good back in 2005. Imagine getting 3.5% more for your house than your listing price. These were heady times for sellers, but incredibly frustrating for buyers.
OK, fast forward to Spring in East Bethesda 2009:
- 11 homes sold during this 3-month period
- The average original asking price was $930,572
- The average final sales price was $865,881
- The average house sold for 93.04% of the asking price
- It's pretty clear that a lot of buyers (and probably some agents) had their heads in the clouds. They were off by almost a full 7%. Loans for larger homes were, while not non-existent, very hard to come by. Most lenders were asking for a 25-30% down payment for $million+ loans... not exactly chump change. As a result, bigger homes weren't selling, and not so many smaller ones either. Next door, in some Chevy Chase neighborhoods, the spread between asking and selling prices was more like 10.5%- particularly for the new builds.
Right around the end of 2009/early 2010, mortgage money began to ease up. Larger loans (at least in our area) were making a come back, and bridge loans were beginning to show themselves again, albeit, sparingly. The Spring market in East Bethesda 2010 looked like this:
- 16 homes sold and settled
- The average original asking price was $1,059,593
- The average final sales price was $1,007,987
- The average house sold for 95.13% of the asking price
- You can see right away that the average sales price rose significantly. This can be attributed to the sale of larger/newer/more expensive homes within East Bethesda. And the spread between asking and selling prices has dropped by about 2%, which is a step in the right direction. It reflects positively on sellers who seem to have come to grips with the reality of the market and are pricing things more moderately.
You may wonder why this is important. After all, a seller can put any price tag they like on a house. Yes- that's true. But these figures reflect only the homes that have actually sold. If your neighbor thinks they'll get $1,000,000 for their $875,000 home, then it's unlikely that they'll be accepting a fair market offer, and it's also unlikely that they'll be selling any time soon. Buyers are too smart to fall for an over-priced home. An over-zealous asking price signals an unreasonableness or, dare we say, craziness on the part of the seller. A lot of buyers won't even consider making an offer on a home that is unrealistically priced.
As a buyer or a seller understanding the relationship between asking price vs. selling price is instrumental to getting a true sense of the market. If you have any questions, give me a holler!