Selling Your Home? Make Sure the Price Is Right!
by The KCM Crew on April 25, 2016
In today’s market, where demand is outpacing supply
in many regions of the country, pricing a house is one
of the biggest challenges real estate professionals
face. Sellers often want to price their home higher
than recommended, and many agents go along with
the idea to keep their clients happy. However, the
best agents realize that telling the homeowner the
truth is more important than getting the seller to like
them. There is no “later.”
Sellers sometimes think, “If the home doesn’t sell for
this price, I can always lower it later.” However,
research proves that homes that experience a listing
price reduction sit on the market longer, ultimately
selling for less than similar homes.
John Knight, recipient of the University Distinguished
Faculty Award from the Eberhardt School of Business
at the University of the Pacific, actually did research on the cost (in both time and money) to a seller who priced high at the beginning and then lowered their price. His article, Listing Price, Time on Market and Ultimate Selling Price, published in Real Estate Economics revealed:
“Homes that underwent a price revision sold for less, and the greater the revision, the lower the selling price. Also, the longer the
home remains on the market, the lower its ultimate selling price.”
Additionally, the “I’ll lower the price later” approach can paint a negative image in buyers’ minds. Each time a price reduction occurs, buyers can naturally think, “Something must be wrong with that house.” Then when a buyer does make an offer, they lowball the price because they see the seller as “highly motivated.” Pricing it right from the start eliminates these challenges. Don’t build “negotiation room” into the price. Many sellers say that they want to price their home high in order to have “negotiation room.” But, what this actually does is lower the number of potential buyers that see the house. And we know that limiting demand like this will negatively impact the sales price of the house. Not sure about this? Think of it this way: when a buyer is looking for a home online (as they are doing more and more often), they put in their desired price range. If your seller is looking to sell their house for $400,000, but lists it at $425,000 to build in “negotiation room,” any potential buyers that search in the $350k$400k range won’t even know your listing is available, let alone come see it!
One great way to see this is with the chart below. The higher you price your home over its market value, the less potential buyers will actually
see your home when searching.
A better strategy would be to price it properly from
the beginning and bring in multiple offers. This forces
these buyers to compete against each other for the
“right” to purchase your house.
Look at it this way: if you only receive one offer, you
are set up in an adversarial position against the
prospective buyer. If, however, you have multiple
offers, you have two or more buyers fighting to please
you. Which will result in a better selling situation?
The Price is Right
Great pricing comes down to truly understanding the
real estate dynamics in your neighborhood. Look for
an agent that will take the time to simply and
effectively explain what is happening in the housing
market and how it applies to your home. You need an
agent that will tell you what you need to know rather
than what you want to hear. This will put you in the
best possible position.