Asking Price versus Sales Price

From an appraiser’s perspective, the asking price of a comparable or competitive property may provide some indication of market value, but it is not evidence that anyone was willing to actually purchase the property at that price.  Real estate agents constantly point to asking prices as if they were market evidence, and yes, at times it is, but agents often tell their clients when they list a property to push the last, highest pending sale.  Owners want the most that they can get.  It’s common sense that the next seller up will push the value achieved from the last sale and pending deal.  Thus there is a de-facto, built-in, upward asking price bias in most real estate markets. 

One of the real estate agent versus real estate appraiser conflicts that is most often talked about has to do with that built-in market asking price bias.  Agents ask appraisers, “Why can’t you see that the direction of the market is up?”  I have even had that question asked when prices were falling by 20% per year for 3 years consecutive years.  For the appraiser, there are times when you have to shake your head and ask, “What are they talking about?  Are they living in another world?” 

Part of the reason that broker price opinions (BPOs) are so popular, and so dangerous, is that agents / brokers doing them use asking prices and not sales as the basis for their opinions.  If you consider an absurd market, like the market for Trump Tower condominiums, you would find that the average sales price may be $ 350 per square foot while the average asking price is $ 550 per square foot.  If that example doesn’t make my point about asking prices, I don’t think anything I say will convince you that asking price does not equal sales price.  That is why appraisers conclude “market value” while agents completing broker price opinions (BPO’s) conclude “market price.” 

It is in fact difficult for an appraiser to conclude a market value opinion that is not substantiated by closed sales.  Yes, appraisers “review and consider” asking prices.  In fact many appraisers are taught to consider current listings and pending sales.  Appraisers consider the fact that “sales” by their very nature are “historical,” that the market may, or may not, have already moved in one direction or another.  Let’s be clear.  There are static markets that are not changing, and there are markets where prices are increasing or falling.  If it is your opinion as an appraiser that the market is moving up, and you want to include an adjustment to sales for that movement, then it shouldn’t be that hard to prove it with multiple examples of funded pending sales, or by providing market supply and demand information that supports your opinion.  Remember the question, “Is the adjustment supportable?” You can rest assured that if as an appraiser you begin using listings and pending sales as a basis for an upward adjustment, someone is going to want to see your support for that adjustment.

When appraisers use market condition (time) adjustments the adjustments, those adjustments are supposed to be based on actual data.  That means they are supposed to have looked at the market data and considered paired sales, grouped sales or statistics that isolate time.  A great example of that type of consideration is the comparison of properties that sell and then are resold.  Often everything except time has remained the same, and the difference can be attributed to the change in time.

The change in asking prices over time has to do with human nature.  Even when everyone in a tract home development is asking $ 200,000 for the same model, no one may have ever sold one of those properties for that price.  If someone does sell one for $ 200,000 all of the listings will go to $ 205,000 or more, and it becomes a baseline.

Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/3642-Asking-Price-versus-Sales-Price.html