To understand why most homes sell for so close to the listing price, we can take a look at the home seller’s point of view.
A home seller is trying to get the highest amount possible during the home sale negotiations. They made an investment in purchasing the home, and of course, would like to see the greatest returns possible. Or, in a less happy tale, they are in a situation where they are upside down on their mortgage and can not afford to sell it for anything less than what they have listed. Either way, the average seller is motivated to get the best price possible. (There are exceptions. You will hear about “motivated sellers.” This generally refers to cases where selling the home quickly might be more important to the seller than waiting additional time to get a better offer. For example, they need to move right away, etc.)
How the listing price is set
When a home seller puts their home on the market, they are also getting expert advice from a professional. Their agent will run comparables of similar, recent home sales. This provides a realistic idea of how much the home is worth now and how much people are willing to pay for similar homes. Sadly, for many home sellers, this number may be less than they were hoping since right now our market is experiencing an inventory that exceeds demand.
In other words, before the home was even listed, the home seller has likely gone through their own reality check. It is even possible that the home is listed for less than they were originally hoping. Their listing price represents their expectations and desires for the return, and receiving offers significantly lower will likely not be accepted. Instead, most sellers will decrease their asking price by $5,000 to $10,000, and hope to receive an offer closer to that price.
But what if the home owner listed their home at an unrealistically high price?
Imagine a home seller who was advised by their agent to list their home at a price lower than they were hoping. Instead of accepting this sad fate, they decide to list their home at a higher price than advised, maybe a higher price than is realistic in this market. Is this seller a good chance for a record negotiation? Probably not. More likely, if they receive no offers or interest in the home, or receive offers lower than they expected, they may drop the list price a few percent, and wait and see if this attracts more potential buyers.
Seller behavior explains why most homes sell for 2-5% of asking price.
Once the current market value is established by comparing to recent and similar sales, the listing price is set. If they have not received an offer they are happy with, most sellers will adjust their asking price within 2 weeks to 2 months. Usually, they will drop the asking price by $5,000 to $10,000 and wait, hoping for a better offer or additional interest in the home. This seller behavior helps explain why the majority of homes are sold within 2-5% of the asking price. If they don’t receive an offer within that range, they’ll try other tactics rather than accept an unusually low offer.