First price cut's the deepest

Home Sale Hindsight

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Oct. 15, 2010

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Home Sale Hindsight

Tara-Nicholle Nelson
Inman News

Q: My Realtor keeps saying that I should lower my sales price by $20,000. It's been on the market since May 25, 2010. What do you think? --Jim, Arizona

A: As brilliant as I am (and modest, too, obviously), I'll be the first to admit that no national real estate commentator or expert can give you advice on pricing your home with the same level of expertise and insight into the comparable sales, competing properties and buyers' perception of your home that a local broker or agent can.

Your own agent's advice is especially credible and trustworthy if that agent is a local real estate pro with a track record of closing sales of homes in your market, in a fairly recent time frame.

And despite what the popular media would have you believe, in many ways your agent's interests are highly aligned with yours in that they don't get paid -- at all -- unless and until your home sells. Once an agent has your listing, she has a strong incentive to give you the advice that would get your home sold.

So, the first thing I would ask is whether you interviewed your agent and took the care to verify that she has a history of successfully listing pricing and marketing homes in your area before you "hired" her to list your home. If so, then trust her! If not, it's still possible that she's giving you good advice, but we'll get into that further in a moment.

Nothing makes me crazier than the e-mails I receive from sellers who refuse to follow their agents' advice, then wonder why on earth their home won't sell -- if you trust your agent, at least try following her advice. If you don't trust your agent, find a new one you do trust.

With that said, it does behoove you to do what you can to understand why your agent is making this recommendation, and to make an informed decision about whether to follow her advice. Questions you should consider, in evaluating her advice to lower your price:

1. Relative days on market. You mention that the property has been on the market more than four months, which sounds like -- and is -- a long time. But how long is it relative to the average number of days a home in your area stays on the market?

Ask your agent to brief you on the average number of days on market; if homes are generally on the market around that long before selling, then you may not have as urgent a need to reduce the price, but do keep in mind that you have well tested the market of buyers out there now and they don't seem to be biting at that price.

2. Seasonality. Also keep in mind that the market is more active during the summer. If it didn't sell at that price over the summer months, the chances it will sell priced at the status quo heading into the fall and winter are very slim.

In fact, it might take a big price cut to activate today's buyers into making an offer on your home against the backdrop of all the low-priced distressed homes in most local Arizona markets.

3. Buyer search behavior. If you agree with your agent that it's time for a price reduction -- as I'm inclined to do, by the way -- but you're not convinced that $20,000 is the magic number, take the way buyers search for homes into account to maximize the exposure your home will get by virtue of this price reduction.

Buyers generally cut their searches off at $50,000 and $100,000 increments. So, arguably, your home would get more exposure to buyers from a $6,000 price cut from $355,000 to $349,000 than it would from a $20,000 price cut from $330,000 to $310,000.

(Of course, if your home's comparable sales indicate a value of $310,000 and it's currently priced at $350,000, then the ideal price cut wouldn't be to $349,000 -- it would be to $299,000!)

4. Your urgency, bottom line and desire to avoid lowballs. The more urgent your need to sell, the more quickly and deeply you should consider cutting your price. To be clear, your insistence on maintaining the current list price does not in fact mean that you will sell it at the price you want.

Conversely, neither does dropping the price by $20,000 mean you are taking a $20,000 hit to your net sale price -- I've seen time and time again where a price reduction hit a home's pricing sweet spot, and generated multiple offers, with an end selling price above the reduced price.

On the other hand, I've seen sellers refuse to cut an obviously overpriced home and end up with nothing but seriously lowball offers from buyers who perceived the seller as being (a) unreasonable and/or (b) desperate.

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