Death by a thousand cuts.
Todd Waller wrote a post titled “Overpriced Listings: Death by a Thousand Cuts” that speaks volumes about pricing your home for sale. Based in part on an article from MSN Money, Todd’s post mentions one of my favorite phrases – “death by a thousand cuts.”
No, we’re not talking about some sort of evil samurai that will come to your home if you make too many price reductions, we’re talking about the psychology of real estate. We’ve spoken about this before in “Listing your home is not a game.,” but it is always worth discussing again.
They’ll lower the price again.
Buyers are looking for a deal. With all the attention on the housing market over the past couple of years because of foreclosures, underwater mortgages, depreciation of homes, and in some cases, entire neighborhoods becoming modern day ghost towns; it’s no wonder. San Antonio buyers have been barraged with the news from California to Nevada and while we’ve suffered much less than other parts of the country, we too have seen changes in our housing market.
Because of the constant influx of this housing information, buyers are not looking to pay a dime more than they have to and they have become very good at taking the “wait and see” approach when they feel a home is overpriced. In many cases, their stance has been rewarded, as sellers who were desperate to sell lowered their price, month after month, hoping that they would finally hit the magic number that would bring buyers waiving their checkbooks in the air.
Eventually, someone will bite at the reduced price and the home will sell, but at what cost? As the price reductions begin, the sellers begin to reveal their hand. One price reduction can actually lead you to a longer listing. Why? Buyers are waiting you out. They want you and your real estate agent to continue to lower the price, month after month, week after week. By the time they make an offer, the price has been reduced so low that the buyer walks away with a home for a great price and the seller walks away sore from having their home on the market so long.
A well priced home will sell faster than the others in the neighborhood – it’s simple economics. Once the buyers smell blood from the death from a thousand cuts, they will wait it out and make their move when the home is priced even lower than it should have sold for. The buyers are willing to move on to a different property if your home never meets their price needs.
There is only one solution to this game of cat and mouse: pricing the home according to the current market. Avoid overpricing your listing and you will increase your chances of selling. Let your neighbors price their house however they want, if you’re the best value on the block, your home is going to sell much faster than Mr. Jones’ home across the street.
The obvious question.
So if price reductions are so bad for sellers in today’s market, why do Realtors recommend them? In my opinion, there are two kinds of price reductions. Reactive price reductions and proactive price reductions. Although both can be employed by agents and their sellers to reduce the home’s price, one is definitely better than the other. By the way, I named these for my own use, so you won’t find them in the Realtor Handbook anywhere.
Reactive price reductions – These price reductions are based in reaction to the home not selling. The most common reason? The home was priced too high to begin with. Some sellers want to “give it a try” or insist that despite all market data and a solid comparative market analysis, their home is worth more. One of the toughest jobs as an agent is to convince a seller who won’t budge on price. I don’t blame them, everyone wants the maximum price for their home. The unfortunate thing is that there are real estate agents out there that will blindly take these listings, knowing full well they won’t sell at that price, but count on future price reductions to bring the home in line with market conditions and eventually sell. This hopeful attitude is neither good for our industry or for the seller and only does more damage to the real estate industry’s image and the seller’s bottom line. Although sometimes it is necessary to reduce the price, it is much better to work proactively than reactively.
Proactive price reductions – The housing market is ever-changing and as much as I wish I could, I can’t predict the future. Proactive price reductions take into account changes as they happen. Perhaps there’s been a news item that says your school district is failing, perhaps they just opened a toxic waste dump next to your home, perhaps the overall market is just slowing down – no matter what the cause, the effect remains the same; the pricing in your area needs to be adjusted. By keeping an eye on the market, we are able to offer clients the advice of where do we go from here as it happens, instead of waiting until the market has shifted again.
A necessary evil.
Price reductions are at times a necessary evil. No one wants to make them, but when a price reduction can be the difference between staying on the market for another few months or getting the home sold, the hard decisions have to be made. It’s never a fun conversation to have with a seller who only wants to sell the home and walk away with as much money as possible. Pricing it right from the start will alleviate some of the hard decisions and emotional and financial difficulty they bring.
Interesting in finding out what your home is worth in today’s market? Fill out the simple form below and we’ll get back to you to discuss your home’s fair market value.
image courtesy of Craig Murphy