July 2nd, 2018 8:23 AM by ERA Big Sun Realty
Price Reductions as a Seller – What You Need to Know
Every seller wants to get the highest price for their home. Unfortunately, sometimes the best possible price is not the price you were hoping for. If your home stays on the market for an extended period and you really want to sell, you are going to have to drop the price. But when?
One of the questions many real estate agents get from their seller clients is “when should I reduce the price of my home.”
There is not always a clear cut and dry answer to this question, however, there can be some signals that scream it is time for a price reduction.
Choosing when to reduce the price of your home is not easy, but if you have to do it, you have to do it. Most of the time your real estate agent is the person best qualified to decide when to make the reduction, but ultimately the decision is yours. The words “most of the time” is prefaced because numerous sellers make the mistake of hiring a real estate agent based on price and not on competence.
In fact, if you are a seller reading this you may be in the unenviable position of being stuck with a real estate agent who has overpriced your home. Unfortunately, there are lots of unprofessional agents in this business that make it a strategy to lie to sellers about market value just to secure a listing. Awful and against the code of ethics but true.
If you have lost faith in your real estate agent and don’t know if now is the right time to reduce the price of your home, here are a few things to consider in your decision making:
1. Can you do more to sell the home?
Usually your agent will cover all the bases necessary to sell your home, but it never hurts to verify that you are doing absolutely everything to move the process along. You might want to first investigate whether there are other issues that are causing your home not to sell. For example, is your agent doing everything they can to market your home well?
Does the listing explain the benefits of owning the home in addition to the features? Are there plenty of great photos of the home? What about a video tour? Do you have a website for the home? Have you done a direct mail marketing campaign? Is your “For Sale” sign in a good position, where it is highly visible? Does it list several different contact numbers and the website address?
Beyond these details, there are other things you can look at. Are you accommodating as many showings as possible? You want as many potential buyers coming to see your home as you can get, which may mean leaving the home at inconvenient times. Also, are you paying your agent a competitive commission? You often get what you pay for with agents, so it is worth hiring someone who demands a fair commission.
If you are nodding your head in the affirmative that all these things are being done then maybe it is not your agent after all? One of the top reasons why a home isn’t selling happens to be the wrong price.
2. How motivated are you to sell?
If you are really motivated to sell, you are going to have to price your home according to current market conditions – which may mean selling it for lower than you really want to. If you are not that motivated, it’s OK. As long as you are in a position where you can hold off, there is nothing wrong with waiting until the market is more in your favor.
A buyer’s market is a market with lots of inventory, which drives competition up and prices down. The buyers are in the strong position as opposed to the sellers. In a buyer’s market it may not matter how exceptional your home is. There may be simply too many other options out there for the buyer to bite at your price point. This is simple economics of supply vs demand on pricing.
You can continue living in your home for a while, or you can rent it out and waiting out the market. You only have to sell when you want to – or when your circumstances dictate that you must.
To be clear waiting could be a year or more. It does not mean waiting out buyers right now. Some sellers think waiting will bring higher offers. This is the exact opposite of how things work in real estate sales. The longer a home stays on the market the greater the spread between the list and sale price. Days on market is your enemy NOT your friend! 99% of the time waiting longer does not make better offers appear.
3. Remember that you only want to reduce the price once.
In an ideal situation, you would price your home at a competitive rate and never have to reduce the price further. But sometimes things are not ideal. You or your agent may have overestimated what people would be willing to pay. In fact, you may have been so attached to your home that you over inflated its real market value. It happens, which is why sometimes you have to reduce the price.
However, you must keep in mind that multiple price reductions will start to make your home undesirable. Lowering the price in the first place can draw some negative attention, because it makes people wonder why no one bought it.
But the first price reduction can also attract buyers who want a good deal – as long as you reduce it enough to be competitive. But multiple reductions will usually draw even further negative attention, leading buyers to assume that there must be something seriously wrong with your home.
4. Reasons to drop the price of your home.
When people ask “when should I reduce the price of my home” they are often looking for set reasons why they should do it at a certain time. Here are some considerations to think about whether it might be the right time to drop your price:
There are not many showings – Not having much activity is a solid indicator that something is wrong and it more than likely is the price. If agents are not scheduling showings there is a problem! New listings hitting the market almost always see a significant amount of traffic right away if the market is decent.
In fact, the first few weeks your home is listed should be the busiest. Buyers want to get out and view the newest listing right away so they don’t get bought by someone else.
If your home is not getting this initial surge in traffic you may have priced it too high. All those potential buyers could be waiting out there, seeing if you drop your price. Remember today’s buyer with access to everything online is very educated on home values.
The reason why the first few weeks that your home is listed for sale will almost be the busiest time is easy to understand. Simply put the buyers have seen the other homes available for sale already.
When a new home goes on the market Realtors will get in touch with their clients right away and schedule a showing. Because of the internet and all the listing syndication channels, it is also likely that buyers will see the home immediately after it is listed for sale. This creates an initial burst of activity. This is why most Realtors will explain how imperative to price your home properly coming out of the gate.
You are running out of time – In some circumstances there may be a need to sell a home quickly. There are plenty of situations where selling as soon as possible is a goal. If you have a specific need to sell quickly due to some future event it is probably better to reduce sooner rather than later.
There could be any number of reasons including moving because of a job change, family, you are going through a divorce or maybe you found a home and need to sell before buying. It could be worth it to lower your price just to keep your life in order and have less stress.
Lots of attention, no offers – The flip side to having few buyers looking is having a lot of interest – only no one is putting in any offers. Your home may be really appealing in a lot of ways, but if the price isn’t right buyers will purchase elsewhere.
You don’t want your property on the market any longer than it has to be. If you are garnering tons of interest buy no offers, consider dropping the price of your home.
No money to make repairs/improvements – Some homeowners have not done much to their homes over the years. There may be major updates needed that you just don’t have the money to do. Maybe you have dated bathrooms, a heating system on the way out, an old roof, or dated wallpaper that needs removal.
All of these things buyers will notice and play a role in what they believe your home is worth. If you are not in a financial position to correct issues with your home, you really can’t ask for a price that does not account for these deficiencies. You may have tried pricing taking these things into account but it may not have been enough. Keep in mind a significant percentage of buyers want turn-key homes and will discount heavily when looking at homes that need updating.
The market is changing – In times where you are in a declining real estate market, it’s possible your home can drop in value while it’s listed. You may have listed your home at a reasonable price but a moving forward real estate values in general have dropped. So the reasonable price you started at doesn’t look that way now. Other homes in your area may have dropped their price, making yours look expensive. There not much you can do in this situation but drop your price to become competitive.
Nothing is going on – As previously mentioned, most properties see an initial surge in interest from buyers. Your home may or may not have followed this pattern. However, your home is just sitting on the market for months – you really do have a problem.
The ideal way to know if your situation is normal is to check out other comparable properties in your market at the moment – how long did they take to sell? If you are already 50% or more beyond that time frame, you may need to drop your asking price to get it sold.
One critical thing to remember is that the “days on the market” for your home becomes is super important. The longer a home lingers on the market, the greater the chance you will end up getting low ball offers. The question that nearly every buyer will ask their real estate agent is “how long has the home been on the market.”
You relied on inaccurate pricing measures – Sometimes the price for your home was wrong the day the for sale sign was put in the lawn. It could be that your real estate agent lacked the skill necessary to price accurately or you were selling for sale by owner and used something. To put it bluntly, you have better odds of spotting big foot in your backyard than an accurate Zillow home value.
The home didn’t appraise – did you know the possibility exists that you may have sold your home for too much money? Unlike the previous reasons for when to drop your price, it’s possible you may have sold your home for too much money. If this happens you’re going to need to know how to fight a low appraisal. Challenging an appraisers value is not easy.
5. You will sell if you drop the price to the lower end of the spectrum.
If you want to sell and you have done everything you can to move the home at the current price, you are left with only one choice – reduce your price. So how do you determine your new, lower price? This is when a good agent can be really helpful. Your agent can gather a lot of information on previous home sales, pending sales and current listings to determine what other sellers had to do.
There will be other people that reduced the price of their home. Using all the data available, your agent can help you see what homes like yours are selling for, what they sold for a little while ago, and what they are likely to sell for in the near future.
You obviously don’t want to drop the price lower than you have to. But you also don’t want to drop it multiple times. Usually the sweet spot for price reductions is in the bottom five prices of listings for similar properties in your area. If you can price your home where it looks like a deal, you will attract the buyers you are looking for.
6. You may start a bidding war.
One of the advantages of putting your home lower on the pricing list is that you can attract multiple buyers at once. When several buyers want your home, they will usually present offers to one-up each other, which drives the price higher than the one you set. You may not get as much money as you would have if you had sold for your original price – if you had ever sold, which was unlikely – buy you might get lucky enough to make more than you expected.