Avoid desperate real estate price cuts

REThink Real Estate

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Aug. 4, 2011

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REThink Real Estate

Tara-Nicholle Nelson
Inman News™

Q: We recently bought a retirement home out of state. We are trying to sell our longtime home, which began its listing at $550,000. After a few weeks, we dropped the price to $547,000; then after another few weeks to $525,000. We will accept anything over $500,000 but we have been told we need to list it high to play this stupid game of "offer/counteroffer."

Doesn't it look to the average buyer that we are now desperate to sell with so many price drops? How do you say, "I want $500,000 and that is the bottom line!"? If I ask for $500,000, I am told all we will get is numbers in the $400,000 range. What are your thoughts?

A: There are really two schools of thought here. It seems as though you and your agent might come from different schools -- and you both have valid arguments, to which there are valid counterarguments.

Your agent is certainly correct that if you list your home out of the gate at your absolute bottom-line price, you may be disappointed with the offers you receive, because buyers these days are negotiating more aggressively than at any time in recent memory and often will come in below the asking price, no matter what the asking price is (except in multiple-offer situations -- keep reading for more on that).

And you are correct that some buyers may see your multiple, rapid-fire price reductions as a sign of desperation -- which might even drive them to keep holding out on making an offer to see how low you'll go. Other buyers, however, see price reductions as the sign of a seller who is realistic and responsive, someone who is ready to deal.

I've also seen a number of instances of a "sweet spot" phenomenon, wherein an overpriced property has one, two, even three price reductions, finally reaching a price that hits a sweet spot, resulting in multiple offers and a final sale price somewhere over the final asking price.

Unfortunately, the specifics of your reductions are less-than-optimal; it's ideal to make every price reduction count for enlarging the audience of people who will see your home, by bringing the price below a common search cutoff every time, and not making penny-ante reductions that buyers see as silly (e.g., from $550,000 to $547,000).

I'd have encouraged your first cut to be from $550,000 to, say, $524,999 to make sure your home was exposed to the entire population of folks who cut their online listing searches off at $525,000.

And another thing: When people say they'll take anything over $500,000, I always suspect they're not really getting to their bottom line, either, in what they reveal to me, or in their private conversations with themselves. You won't really know what your bottom line is until you get an offer for $490,000 -- would you really turn that away if it were the only offer you had?

I ask because the elephant in the room you both seem to be missing is this: The list price and market value of your home should not be driven by what you need to get for it. Rather, your list price and what you expect to get for your home should be driven by what the recent homes like and near yours have sold for, and by the condition, aesthetics and location of your home vis-à-vis the other similar homes on the market.

Frankly, if your home is listed above what the market says it should go for, buyers won't care what your bottom line is. It's irrelevant to them -- they just want a good deal on a home that works for them, and they need to be sure it appraises for at least the price they pay for it.

Conversely, if you list your home slightly under the sales prices and list prices of competitive properties, you can actually generate multiple offers above the asking price, as buyers compete to get a great home for what seems like a great value. This is especially true if your home is well-located, in great condition and has strong curb appeal.

So, if your home's comparables are selling for $500,000, or your home's competition is listed at $510,000, you really should list it at, around or even slightly under $500,000. Your goal should be to price your home not to meet but to beat the competition, making your home seem like a superior value to even the online house hunter, compelling them to come see this great deal.

Listing at anything over a realistic market value will make buyers suspect you're unrealistic, and they'll wait for you to drop the price into the realm of reality, at which time your home will have been on the market for awhile, and they might very well perceive you as desperate.

Only you can rank your priorities between selling your home fast, selling your home for top dollar, and selling your home -- period. (With another home and mortgage, I'd suspect that the latter is somewhere near the top of the list!)

I submit to you that a realistic listing price that is based on the comparable sales and the competition, rather than a hypothetical future negotiating game or what you want to get for the place (also known as the game of fantasyland), will get you the closest to achieving all three of these aims.

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