How many times have you heard this question before when talking to clients whose house you’re about to list? “Can’t we just try it at this price for a couple of weeks?” It’s common knowledge that pricing a home successfully and for a timely sale is eighty percent of the game. Simply stated, market value is the price a buyer is willing to pay. In a down trending market, hitting that valuation target can prove an elusive bulls-eye. Home pricing is not a fine science and there can be a lot of intuitive work especially in those instances where comparables are hard to come by.
Typically, sellers will see the highest level of showing and previewing activity in the first two weeks of market time. The challenge, then, is for sellers to price their property precisely where it meets is prospective buyer’s expectations at their highest level. To illustrate my point, let’s use a listing price of $450,000 as our benchmark. The (Seattle market, slightly above median price range) house, a 1750 square foot mid- century rambler is in a residential neighborhood, has been updated in the last decade and is desirably configured with three bedrooms, 1.75 bath and one car garage. It sits on a comfortable 7,500 square foot lot and offers easy access to local amenities. Assuming a balanced or seller’s market which we have enjoyed for several years, the well-priced house is likely to sell at or above its listing price. However, despite the fact ours is amongst the top housing markets in the country today, there has been a tremendous increase in active inventory relative to this time last year and it’s having an effect on pricing. How then, do you counsel your clients when pricing conditions are fluctuating unpredictably?
When I conduct a listing presentation for new clients, I diagram for them the first few weeks of market time like this. Imagine a graph with the vertical line representing price, the horizontal market time. Market data indicates the home is well-priced at 450K, yet my clients want to try it at 470K because, over the last few years, inventory has moved briskly and they “need” their price. On the graph’s price line, I indicate for them the two prices, 450K and 470K. From the 450K mark, I draw a horizontal line extending out a couple of weeks, perhaps more, after which it begins its slow descent towards the 440K, 430K mark, etc. I also draw a line from the 470K mark in the same horizontal direction. Only, after a similar period, it makes a precipitous drop, actually passing the other line to a lower price point. I shade in the gap between the two lines. (Remember, this is theory only and each market has its unique dynamic, so time and dollar amount will differ accordingly.)
I detail for my clients how today’s buyers spend much of their time familiarizing themselves with inventory on-line before even contacting an agent and that they are apt to be very well-informed when entering the market place. Furthermore, good agents stay on top of market pricing by touring and previewing new inventory on a regular basis. The risk to the seller then is this. If they price their home too high, buyers who can afford it won’t see it because it’s not appearing on their radar or their agent isn’t including it in showing tours. Furthermore, buyers who are in the 470K range are using the home as a means of comparison to other similarly priced properties which they find offer more in terms of square footage, updates, location, etc. Thus, they are using my client’s home to justify purchase of another one. I explain to them further that, once agents and consumers have become familiar with the property and now consider it priced too high, it becomes “shop warn”, the message being there must be something wrong with it. And so, the pricing chase begins. With a few more weeks on the market, and several price drops later, the house is now priced below 450K where it would have likely sold originally. Not only did the seller not realize their original goal of attracting the best qualified buyers, they leaving money on the table ultimately.
I make it a practice in my business not to take on clients whose pricing expectations differ dramatically from what market data is revealing. Certainly, there are agents in every market who will list a house at whatever price the seller determines, knowing full well market forces will drive down the price ultimately. The upside for the agent is a sign in a seller’s front yard which can be leveraged for marketing and further business. Personally, I think this is a bad strategy as agents can and do develop reputations for poor business conduct. Furthermore, the referral-based business I run is built on strong results and client satisfaction. I prefer not to spend my marketing dollars on a property whose seller maintains unrealistic pricing expectations. After all, my compensation comes when the deal closes, not before and I certainly am not in the habit of throwing good money after bad.In taking time to educate your client thoroughly, you protect not only their interests but your own as well.