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You spruced up your home, put half of your things in storage and don’t let your kids near any public room. And yet your property lingers on the market, unsold. So, when should you reduce the asking price?
- Is your competition getting any action? Or is the entire neighborhood going through a slow patch?
- How motivated are you compared to other nearby sellers?
- Are you (or your agent) doing everything else right? Or could you do more?
Price is the top consideration for many buyers. But it’s not the only one, or we’d all be living in dumps. Buyers want a good value for what they pay, and they want to feel good about what they buy. And it may take a price reduction to achieve that.
The dreaded decision: reduce the asking price?
When should you reduce the asking price for your home? That’s not a question any seller wants to ask, but in the real world – a world where the best plans sometimes go awry – it’s a real issue for many home sellers.
Most homes are listed with reasonable asking prices. Research from the National Association of Realtors (NAR) shows that in 2017, most sellers – 60 percent – never reduced their asking price. Asking prices were reduced once by 22 percent of all sellers and twice by another 10 percent.
Finding the right price
Pricing a home for sale is both science and art. When listing a home real estate brokers will provide a CMA (Comparative Market Analysis). This document is usually produced with sophisticated software. It contains a great deal of information regarding recent sales, properties now available, average days on the market, pricing trends, etc.
A CMA can provide guidance regarding local prices, but it’s open to interpretation. Several brokers can look at the same CMA and see different valuations. The reason for differing prices is that all homes are unique. Some of us may value individual home features differently.
The important point is not overvaluing a home so that the property languishes on the market. At the same time, sellers do not want to undervalue a home and the lost money they might have earned with better pricing. Like Goldilocks, you want a selling price which is just right.
Importance of a list price
When a broker lists a home, there is a formal contract between the seller and the broker. This contract authorizes the broker to list the home for sale at a specific price. The broker cannot suggest a lower price to the public. If you lower the list price, it must be done in writing.
What about online price estimates?
Don’t rely on an online valuation model when determining if you should reduce the asking price of your property. While many online sites estimate individual home values, they don’t know everything. Such estimates are calculated from big data, algorithms and artificial intelligence.
No doubt they are interesting to watch. However, they do not include a physical tour of the property. The valuation by a computer and a human may be very different if there are 46 abandoned cars on the property. As a seller, you want to visit open houses and speak with local brokers to get a solid understanding of local property values.
The inventory shortage
There has been a significant inventory shortage across the country in 2017 and 2018. In some local markets, the shortage of available properties has been acute – great news for sellers.
One way to see the inventory-shortage impact is to ask about local days-on-the-market. In August 2018, the typical existing home was on the market 29 days, according to the National Association of Realtors.
However, this is a national average. Results may be very different for expensive homes, properties located in slow markets or houses which feature customized designs.
What if the market changes?
There’s always a risk in the marketplace. One risk is that prices may change once a home sale is announced. Owners may price a home on the basis of recent sales and then have the misfortune of entering a slower market.
Alternatively, when the $5 billion Amazon HQ2 project winner is announced later in 2018, it’s likely that nearby home prices will soar.
When should you reduce the asking price?
The best way to see if a valuation is “correct” is to test the market. Placing the property on the local MLS, advertising, open houses, and online promotion each give potential buyers the opportunity to consider the home. What is the feedback from brokers and possible buyers?
Don’t hang on every word. Buyers and sellers have opposing interests. It makes sense for buyers to suggest that the price is too high. It may not make sense for you to believe them.
At this point, context is very important. Is it realistic to hope for a quick sale if most local homes take a long time to sell?
Is the problem marketing and not the price? Do you need better photos online? A virtual tour? Better staging? Another open house? Photos from a drone? A broker open house? Is there a “season” which produces faster sales and better prices? Look at these issues before considering a price change.
How much of a reduction?
A key question concerns the size of any reduction. If it’s “too large” it may suggest desperation. In this case, buyers might wait for another round of discounts. If it’s too small, buyers may not be impressed. Going from $499,900 to $499,800 gets you a new list price and additional exposure. But – financially – it’s not a big deal.
Should you re-list the property?
A very real question is whether the property has been on the market for too long. Does it make sense to withdraw the listing and try again at a later point?
This might be a way to “freshen” the listing. MLS rules may require a certain time period before the property can be listed again with a new MLS number, and that can be a problem for owners who want to sell quickly.
Don’t forget your goal
The whole purpose of a home sale is to successfully market a property for the best price and terms available. In some cases, a somewhat lower price and faster sale may be better. For instance, if you need to move before school starts, or a new out-of-state job requires your presence, whether you have sold your home or not.
So, should you reduce the asking price? A little price slippage may be fine if it means an end to monthly carrying costs like mortgage payments and utility bills. The buyer will feel good, and you’ll have a sale.