You don’t always get what you want?

We always tell students that asking prices tend to be below actual achieved prices in the hierarchy of evidence.  This is set out in the RICS’ Information Paper: Comparable Evidence in Property Valuation where asking prices are at the bottom of the list (hierarchy).  So how useful are asking prices?  How much out are they likely to be?

I’ve seen some interesting evidence in various RCA documents.  Tom Leahy presents an interesting graph which suggests that differences between asking and achieved prices tend to be related to market conditions.  When the market is hot, there tend to be premiums above asking prices (15-20% in mid-2104 for London).  When the market is in crisis, there tend to be similarly large discounts.  I suspect that the pattern would be closely linked to patterns of valuation accuracy.

The reason for premiums is because of the sale process.  Similar to residential property in Scotland, commercial real estate is often sold by a tender process and it is common to bid above the asking price (in Scotland, they usually specify “offers over”).  In other markets (typically where the buyers accepts the first satisfactory offer that arrives), it is common to bid below the asking price.  So, in another RCA piece, Jim Costello and Elizabeth Szep look at asking prices relative to achieved for US apartments over the last decade.    Again, the variation between asking prices and achieved prices is variable over time.  You see the same pattern – large discounts in downturns (15%-20%) and lower discounts in strong markets (2%-3%).

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