The list price of a house is often the front line of marketing that potential buyers are influenced by. So as a potential buyer it is definitely beneficial to understand how the list price is used as a marketing strategy. Hopefully after this blog you will be able to use the list price as a way to help your search as opposed to looking at houses that appear to be in your price range but will actually be wasting your time.
Most people start their home search, no matter which website they are using, by setting a price range they consider to be in their budget. For the purpose of getting the marketing strategy of the list price across, I decided to use the example of $450,000. I looked at all the listings of freehold houses in Guelph that have sold in the last 90 days as of March 8th, 2017. The first group of houses had a list price between $375,000 and $399,999. There were a total of 42 houses listed in this price range, I used the most recent 20 for the purpose of this blog. The second group of houses had a list price between $400,000 and $425,000. There were only 13 houses listed in the price range over the last 90 days. You will soon understand why there are fewer listings in the second group.
The following numbers really show the impact that the list price of a house can have on the final selling point.
The first group of houses (375-399) had an average sale price of $440,800.00. Good for an average of $47,636.55 over the original asking price. At first look and knowing the craziness of the Guelph market these numbers may not come across as surprising. However when put beside the numbers of the second group, they become much more eye opening.
The second group of houses (400-425) had an average sale price of $435,184.62. Good for an average of $18,900.00 over the original asking price. CRAZY! Even though the second group of houses had an average list price $22,121.17 higher than the first group of houses, they ended up selling for an average of $5615.38 less!
So why does this happen?
In a market where holding back offers has become the norm, the idea is for the listing agent to receive as many offers as possible on offer day. One of the strategies they use to help get as many offers as possible is to make sure the house appeals to as many people as possible.
Remember that budget you entered to start your search? In the case of the two groups of houses above, the first group of houses likely had more offers come in on offer day because the list price allowed for people that set their max price to $400,000 to still see the house. The second group of houses would have missed out on this group of people because they listed over that $400,000 threshold.
Even though the buyers with a maximum of $400,000 would not have been able to afford the average sale price of $440,800, every offer that gets put in likely pushes the buyers that can afford to spend more, to offer a higher price to give themselves the best chance of getting the house. A house with 6, 10 or even 20 offers is very likely going to sell for more than a house with 2 or 3 offers put in on it.
So what can prospective buyers take away from this?
When executing your search, remember that a higher list price does not always lead to a higher sale price. If you have a budget of $450,000, you may be better off looking at houses that are listed higher than $400,000, even though there are similar houses listed under $400,000.
Understanding the real estate market is more than just viewing houses and putting in offers. Sitting down to talk with a local Realtor that truly understand the strategies involved in real estate will make your home buying/selling experience a much more enjoyable process. Feel free to send me an email or give me a call if you have any questions about the Guelph real estate market. I’d be happy to sit down for a coffee or a beer and answer any questions you may have.