Long-time real estate professionals have reluctantly acquiesced to what
we know is an alternate reality. Home prices that only a few months ago
seemed so high as to be preposterous, are now accepted with Prozac-like
calm. Ironically, today, some even appear to be pretty good deals. All
of a sudden, prices are increasing on Internet time.
Although this is wonderful if you are a seller, your approach to pricing
still needs to be suitable for current conditions. Taking pricing lightly,
or basing it on the wrong assumptions, could easily be a $50,000 mistake.
In previous cycles, including everything from a depressed, buyer’s
market to a relatively peppy, seller’s market, pricing has been based on
closed sales. After all, part of real estate dogma is that the selling
(not the asking) price is key. Nevertheless, adopting this premise blindly
would not be wise at present.
As an example, a listing late last year was put on for substantially
more than the previously highest price paid in this sought-after neighborhood.
The house itself abounds with charm and character and is totally remodeled
with quality.
Despite its appeal, agents and buyers made it clear they thought the
price was high. This was notwithstanding the fact that other homes,
similar in size and location, but not charm or condition, had sold for
prices well above this home’s list.
After 10 days of intense marketing and no offers, it was withdrawn from
the market. Seven weeks later, in mid-January, it came back on with
an $84,000 price reduction. At this point, buyers lined up in droves and
bid the price up $100,000 more than the original asking price, and almost
$200,000 higher than the adjusted asking price.
Why was the home not purchased when it was originally offered? Looking
back, it was clearly a reasonable value at the time.
Perception is sometimes more important than reality. Out of context,
the price seemed high. Those buyers who liked the house may not have offered
because they did not know how to put the price in perspective with the
overall market.
The assumption that buyers should be willing to pay a price consistent
with recent closed comparable sales is not valid at the moment. Buyers
often act more out of emotion than logic or common sense. Prices are so
elevated right now that listing near recent record-breaking sales is more
than most buyers can handle.
They see numerous instances of multiple offers ratcheting prices $100,000
or more over the initial listing figure. If the asking price is already
at or near their maximum, buyers will not consider making an offer. Ultimately,
pricing too high means fewer offers. As more offers in competition generally
push the final price higher, overpricing costs the seller money.
A clue to agent thinking is how we talk with each other. In the past,
when I asked other Realtors’ pricing opinions, I would always ask what
they thought the selling price should be. I would infer a listing price
from that.
For the last 18 months or so, I ask for listing price opinions and assume
the selling price will be much greater. If agents look at it this way,
this is a clue for you as a seller.
Although overpricing may harm you, underpricing may also be a problem.
If recent comparables show $500,000 as an approximate value for your house,
listing under $400,000 could be considered too low. This is significant
because many buyers base their offer on the amount over the asking price.
Choosing the exact number for a list price is not simple. It is a function
of a number of factors such as location, size, style, quality of construction,
condition, and outdoor living. Most importantly, accurate pricing
is a reflection of good judgment based on experience.
I empathize with buyers in today’s sharply escalating marketplace,
and try to see things from their point of view. Sellers need to do the
same.
Having a successful sale may look easy, but it requires considerable
planning and correct decision-making. As a seller, taking these good times
for granted by attempting to price your home without expert advice is a
risky proposition.
The pricing recipe contains a large dollop of art and a small sprinkle
of science. During this time of rapid change and uncertainty, professional
assistance is crucial. Working with a highly experienced, local Realtor
could mean more additional funds in your pocket than the entire real estate
fee. Choose carefully.
Multiple
Offers, Part 1 and Part
2; Real
Estate and Stocks; and Bending
The Principle of Progression,
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