As our real estate market continues to shift out of a seller’s market, price adjustments are becoming more prevalent. The number of homes going under contract is down more than 30 percent in most areas compared to the previous 90 day period. And with such a significant drop in demand, prices must get more competitive.
A shifting market not only puts a spotlight on homes that are over-priced, it also places a magnifying glass on conditional concerns (deferred maintenance or disrepair) and/or a lack of updating. This can be very frustrating to a seller. Buyers will find themselves using things about the home that the seller cannot affect, like room sizes or location of the home, to take it off of their list of potential homes.
As inventory grows, the feedback from potential buyers will get pickier and pickier. And as days on market accumulate, the seller’s anxiety level grows as well because they know that just a few short months ago everything seemed to be selling in a day. And now their beloved home has been rejected time and time again with no logical explanation that they can see.
Well, the explanation is simply supply and demand. When the supply of homes goes up and demand goes down, the real competition begins. You cannot depend on the market to do the heavy lifting any longer. Selling a home requires a solid strategy and a price that is in-line with condition while placing you ahead of your competition. Pricing from 90 days ago is no longer relevant. You have to price in the now!
So is there a logic to a price adjustment? The answer is a resounding yes.
The only way to test a list price is to introduce it to the open market and see if a buyer responds. If a buyer does not respond by bringing an offer, here are a few things to keep in mind.
Find a new buyer pool. The goal of a price adjustment is to get in front of a new buyer pool. If you have been on the market for a period of time and have seen a relative number of showings with no offers, then the goal of your price adjustment is to reposition your home so that a new pool of buyers is now made aware of it. To do so typically requires a 3 to 5 percent price reduction. I know this sounds pretty dramatic, but that is what the market requires.
Avoid the stair-step method. Honestly, you really only want to adjust the price of your home once. Once the original list price is tested and an offer is not received, then it is the job of the Realtor to identify a price that will cause the home to sell and get there FAST! Just rip the band-aid off and get the home price in-line with the market so you can get it sold. The stair step method is when a seller drops the price (in most cases 2-3 percent at most) about every two weeks or a month. This method looks like a free-fall to the potential buyer pool and, in my opinion, is simply telling buyers out there that “we don’t know where to price this home so we are just guessing.” When buyers see this, they tend to wait to see how low a home’s price might go, or they may choose to low-ball a seller because they can sense the panic.
Don’t own the price. Oftentimes, sellers can be very disappointed when they find that they must adjust the list price of their home. In many cases, it is because they have crunched the numbers and they are counting on the equity amount from the original list price. Or it can be that they saw their neighbor or their friend sell for more earlier in the year and it is a blow to the ego that now they cannot accomplish the same feat. Well, my advice is don’t own the price. Again, we can only test the price once we go live on the market and until then the price is simply a theory based on recent evidence. Once the market has rejected a seller’s price, then the seller must dust themselves off and ask an honest question: “What is the price that will make my home the best home for the buck when both size and condition are taken into account?” In most markets right now, only 2 to 3 percent of active homes for sale are going under contract each week. The seller’s new price must ensure that their home will be the next one to sell. Otherwise, if the new price does not reposition the home, it will only help to sell other homes that are more competitive.
The shift in the market has brought with it a spike in the number of homes that have canceled or expired from the MLS. If your home has recently canceled or expired and you would like to see a fresh approach to selling your home, please reach out to us today. Or if you will be selling in the near future and want to make sure that you stay ahead of the market instead of chasing it, we would be happy to meet with you and share with you our time-tested plan.