When it comes to real estate, asking price refers to the price a seller advertises a house for sale at while the closing price is what a buyer actually pays. The closing price can be higher or lower depending on the market and what price the buyer and seller negotiate. Closing in real estate refers to the legal and other processes that lead up to the sale becoming final and the buyer taking possession.
In real estate and other markets, asking price refers to how much someone initially seeks for a property or other item, and closing price refers to what it actually sells for. The seller is usually hoping for a higher closing price and the buyer for a lower closing price.
Asking Price Vs Closing Price
Whether a property seller is working with a real estate agent or on his or her own, the seller will generally need to advertise the property for sale at a particular price. That price is called the asking price, and it should be treated as the opening of a negotiation by potentially interested buyers.
The asking price is often set based on information about the real estate market in the area, such as what nearby houses with similar features have sold for in recent months. Sellers who are in a rush to sell might start with a lower asking price, while those who don't mind keeping their properties on the market for a while might start with a higher asking price. Real estate agents often have data about how long houses nearby have stayed on the market, which can also help in setting prices that will attract buyers in a reasonable amount of time without costing the seller too much in missed opportunity.
Price Cuts and Bidding Wars
Real estate asking prices don't have to stay the same over time. If a seller finds that a property simply isn't selling at the listed price, it's common to cut the price in an effort to attract more buyers. This might mean less money for the seller, but it's important to balance that against the cost of keeping the property on the market and the seller's need for cash to buy another home or for other purposes.
On the other hand, if a number of buyers are interested at the listed asking price, this may lead to what's often called a bidding war, with some sellers offering more than the list price in order to buy the property. While these often happen too quickly to result in a revised property listing, they effectively raise the asking price of the home, since anyone coming in with a new bid will effectively have to beat the existing ones.
Closing Process Steps and Negotiations
Moving toward closing, when the house formally changes hands, can be an arduous process. There's often a lot of paperwork to be done between the buyer and a mortgage lender, so it's important to choose a closing date with mortgage considerations in mind. Buyers often attempt to lock in a mortgage rate that will see them through closing in case rates change in the meantime.
During the closing process, the buyer will usually hire a firm to conduct a title search and buy title insurance safeguarding rights to the property in the event of an ownership dispute. Buyers will also often hire a home inspector to visit the property and report on its condition. Either of these steps could uncover an unforeseen issue with the property's condition or its ownership history that could lead to the parties renegotiating, such as requiring the seller to acquire paperwork documenting ownership or fix a structural problem with the house, or even backing out of the deal.
The closing price may also change if the buyer agrees to fix an uncovered issue with the house.
- house image by Cora Reed from Fotolia.com