Real estate discounts to asking price shrink slightly

According to July's Zillow Real Estate Market Reports, home buyers paid an average of $7,039 less than the asking price on homes.

That's a smaller discount than they received in June, when the average home sold for $7,630 less than the asking price. In percentage terms, the discounts were 3.3% and 3.5% in June and July, respectively.

"The strong summer selling season in 2009 has led to a decreasing difference between the last listing price and final sale price, but most buyers are still getting some additional discount at selling time," said Zillow chief economist Stan Humphries in a story at RISMedia. "Overall, buyers are finding favorable conditions for negotiating prices, and now can be a good time to buy, provided homebuyers are financially prepared with healthy down payments and intend to stay in their home for a minimum of five to seven years."

As a prognosticator of the housing market's future, there are a number of problems with using the listing price to selling price metric. To begin with, the high number of foreclosures hitting the market at low prices is reducing the size of discounts.

Secondly, increased price reduction activity also artificially lowers the appearance of discounting. If a home is listed at $200,000 and then the price is cut $100,000 and it sells for $99,000, it goes on the books as having sold at a discount to asking price of just 1%. Of course the seller feels like he gave up a lot more than that.

For buyers, the best thing to do with a study like this one is pay little attention to it. In fact, when buying a house, it's best to try to ignore the asking price as much as possible. Behavioral economists refer to the fixation on arbitrary asking prices as anchoring -- a cognitive fallacy where undue emphasis is placed on an irrelevant (or only marginally relevant) factor.

When buying a home, what really matters is that you get a good value. If the house if worth $250,000 and you pay $300,000 for it, you got ripped off: It doesn't matter if the asking price was $500,00 or $20,000. Similarly, paying double the asking price can be a great deal if it still leaves with you a house purchased at below market value.

Do research on what comparable properties are selling for, and then make an offer that gives you at worst a fair price and, ideally, a below-market price. Pay no attention to the number that shows up on the listing sheet. It's also worth noting that in real estate law, that "asking price" has absolutely no meaning. It's an advertisement soliciting offers, not an offer to sell at a certain price: Sellers can reject offers for the full asking price if they decide their houses are worth more money.

Bottom line: Don't fall into the trap of anchoring your offer to a property's listing price. Do independent research and formulate your own idea of the home's value.

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