A real estate asking price is the list price that a seller sets when putting his home up for sale. The offer price is what the buyer indicates he is willing to pay when submitting a purchase contract. The final sale price typically falls somewhere between the two, and depends on the effects of the negotiation process.
Asking Price Strategy
A home seller usually sets an asking price after his real estate agent does a simple appraisal of value and offers his recommendation. The agent completes his appraisal by comparing the seller's property to similar ones in the market. The seller also considers the time and amount of the previous sale and any recent upgrades when coming up with an asking price. Generally, the objective is to create a price that attracts buyers while maximizing revenue for the owner.
The prospective buyer includes his offer price and any other terms of sale in his purchase contract. If the buyer has an agent, the agent usually consults with the buyer to develop a price. Some agents are more willing to offer a price opinion, while others consult but prefer to let the buyer decide the right price to offer. The agent may do his own comparisons to other homes to help come up with the asking price. The buyer's main objective is to get the home he wants for the lowest price possible. However, he also has to consider the other terms of the offer. If a mortgage contingency, home inspection contingency and other requests are included, the seller may expect a higher price.
Generally, when more people are buying homes than selling in a given market, the seller has bargaining power. He can establish an asking price that is more aggressive. Sellers may also choose to leave some wiggle room below the asking price to allow for negotiations. Maintaining discipline is also important. The seller needs to carefully weigh the benefits of a quick sale at a certain price without getting too emotional. Some sellers may hold out for a better offer and end up waiting too long and making lots of extra house payments. Others give in too quickly at too low a price, just to get the deal done.
Buyers need to have a strategy that extends beyond submitting a low-end price and hoping for the best. If the buyer submits an offer price that is extremely low, the seller may get offended and simply reject the offer. When the amount of homes in the area exceeds buyer demand, the buyer has more bargaining power and options. In this case, the buyer needs to remain disciplined and come up with a final price he is comfortable with. He may offer less and leave room for negotiations. No matter what, deciding a final price before submitting the offer helps protect against overspending based on an emotional desire for the home. Luke Mullins notes in his June 2008 U.S. News & World Report article, "The 7 Biggest Home Price Negotiation Blunders," that buyers can stay disciplined more effectively if they identify several possible homes before making an offer.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.