In the next four videos I’m going to show you, in the simplest way I can, how pricing works in real estate. I’ll begin by explaining the idea of the ‘reaction zone’ and its impact on asking price.

If you look at a list of sales at any real estate office, it will have three columns. The first will show the asking price on the home when it was sold. This is not the same thing as the initial asking price, because it may have been higher.

The second column will show the price the house sold for, and the third will show the percentage difference between the first two. In any office you care to visit, the average difference will be between 3% and 5%. This will be so even if someone paid the full asking price or more for a home. This pattern in sale prices impacts on how to determine the best asking price.

We know from research that sitting just above market value is the ‘reaction zone’, which is normally no more than 5%, and in a lot of cases closer to 3%, above the estimated market value of a property when it’s finally sold. We now know that, in almost all cases, the asking price starts off at 12% above what the home eventually sells for but ends up dropping to somewhere around 3% above that, which is, of course, the market value.

The above figures show that, when you decide on an asking price, you need to pay particular attention to the gap between the asking price and the estimated market value.

The asking price should be within the reaction zone. This rule is quite rigid and quite accurate in whatever market you’re selling.