Understanding the difference between market value and listing price, or “asking price”, is very important.
The listing price is the amount the seller has listed the house for. The decision on this price is made depending on the goals of the seller, other recent sales in the area, their home itself, and the market demand at that time. This is also the price that is shown on the Multiple Listing Service (MLS). Market value is the current value of a home based on local recent sale prices that are comparable to the property being in question, and are in the same or nearby neighbourhood. This current market value is affected by such things as supply, demand, any recent renovations to increase the value, number of bedrooms and bathrooms, lot square footage, house square footage, if there are any legal suites, and the age of the house, among other factors.
When the property is sold, the price it goes for is called the selling price, or sale price. It may be higher, lower, or the same as the price the property was listed at – this is affected by market conditions, and what happens during the offer and negotiation phase.
The amount the buyer has offered to pay is called the offer amount, and is what is in the purchase agreement that is sent to the seller. Throughout negotiations this amount can change several times, or the homeowner can accept the first offer, depending on the situation.
The most IMPORTANT difference to remember between the listing price and the selling price: the local real estate market determines the current value of a home — not the seller. Sellers will generally price their homes based on recent sales in the area. These prices will increase depending on the demand (and there is currently high demand right now!). As a home-buyer, you should understand the difference between what the seller wants for the property, and what it is actually worth in the current market. This is where an experienced real estate agent can help
An experienced agent who has worked with the difference between market value and listing price will be extremely important to you when negotiating offers, whether you are on the buyers side or the sellers side.