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A listing price used to mean something.  Generally, it told you what a seller wanted to receive for the sale of the property.  It wasn't set in stone, but it was a good starting point.  The listing price could be bid up a bit or negotiated down depending on the type of market (buyer's market or seller's market), but it was, with rare exception, a meaningful number with some correlation to fair market value.

Listing prices used to convey valuable information.  Appraisers included them in reports to lenders presumably because they gave an indication of where the market might be heading.   They were a sneak peak into the future.  If listing prices were down for similar homes, the market might be declining and if listing prices were higher than the most recent sales, it was one indicator of an increasing or at least stable market.

But then came the animal that rendered the listing price meaningless: the short sale.  The listing price on a short sale may have no correlation to what the seller or the bank will accept for the home.  It often has no correlation to the fair market value and it can not, without due caution and some investigation, be used as an indicator of whether the market is increasing or decreasing.  In a short sale, the listing price can be, and often is, somewhat meaningless.

Why?  Its a result of the system set up by most banks to handle short sales.  Almost all banks will not review or approve a price for a short sale until there is an offer in on the property.  No offer, no approval.  This simple rule drives short sale agents to get offers.  Any offers.  Let me be clear.  I mean ANY offers. Low, high, medium, serious or just throwing a noodle at the wall offer to see if it sticks offers.  Any offer, however absurd, may be enough to get the bank moving.

In search of "any" offer, the short sale agent is tempted to price the listing well below its fair market value.  For serious but unaware buyers, there are risks to this approach.  I have found that buyers who make offers on unrealistically low priced homes are disappointed when they are not accepted by the seller or approved by the bank.  These buyers are many times outbid by more savvy buyers who are aware of the short sale agent's tactics and make a still favorable, but above asking price offer.  If not outbid by savvy buyers, these unaware buyers are shocked when the bank comes back with an approved price that is much closer to the current value of the home. 

For serious buyers (and for agents and appraisers as well), it is important to understand that the listing price doesn't mean what it used to mean.  It just might be a meaningless... and its the short sale that did it. 

If you have any questions, give me a call. (714) 863-5485