Housing Report

Reduce and Net Less

For sellers who must reduce their asking price to achieve a  successful outcome, they likely will net less at the closing table.  Carefully pricing a home allows sellers to walk away with the most money possible and achieve success quickly. 

For professional track sprinters, getting out of the starting blocks quickly, fast, and first is often the difference in a race. There is plenty of preparation and training to be that runner that is the fastest off the blocks. The initial lunge is crucial and is an advantage that often propels the athlete with the best start across the finish line with arms raised high in the air. 

Similarly, when a home initially comes on the market, pricing a home accurately is the difference between a seller raising their arms in celebration within the first few weeks versus taking months to sell and likely for much less. In today’s market, values are slowly declining. The longer a seller takes to properly price their home and secure a successful outcome, the more money they will ultimately lose. 

One of the most crucial steps in being able to sell quickly, open escrow, and obtain the highest possible net proceeds from the sale of a home is to carefully arrive at its Fair Market Value. In every price range, homes sit without success, leaving these sellers wondering what in the world they are doing wrong. 37% of all homes in Orange County have been on the market for over two months, and 44% have reduced their asking price at least once. Throwing a price out there just to test the market is not a wise strategy. Instead, carefully, and methodically pricing a home is vital to cashing in on the Golden Opportunity, the first few weeks after coming on the market. It would be better to spend several hours coming up with an extremely accurate price than to waste weeks, or even months of precious market time. 

Due to the high interest rate environment, the market is lining up in favor of buyers during the negotiation process. Buyers do not want to overpay; they are unwilling to stretch. Accurate pricing is fundamental regardless of the temperature of housing, especially in a declining market. Throwing a price out there just to test the market is not a wise strategy. Ultimately, when asking prices of homes must be reduced in order to secure offers to purchase, it not only takes longer to sell, but sellers also sell for less. On average, the net proceeds check at the close of escrow is less if a price reduction is required. 

It is very telling to look at the sales price to last list price ratio. This refers to the final list price prior to opening escrow. These are averages, meaning there are exceptions, but the overall trend is stunning. In Orange County, 57% of all closed sales in October did not reduce the asking price at all. The sales price to last list price ratio for these homes was 99.0%, meaning, on average, a home sold within 1% of the asking price. A home listed at $1 million sold for $990,000, just $10,000 below the asking price. 15% of all closed sales reduced their asking prices between 1% and 4%. The sales to last list price ratio for these homes was 97.5%, and, on average, it took 43 days to open escrow. A home that reduced their list price to $1 million sold for $975,000, a considerable $15,000 less than homeowners with no reduction. For homes that reduced their asking prices by 5% or more, an astonishing 26% of closed sales in October, the sales to last list price ratio was 96.4%, after being on the market for a couple of months. A home that finally reduced their price to $1 million sold for $964,000. Everybody would agree that closing at $990,000 is a whole lot better than $964,000, a mind-blowing $26,000 better.









Excerpt taken from an article by Steven Thomas.

About the Author

The real estate industry continues to evolve, and I pride myself on being on the cutting edge, finding new ways to work with clients to achieve their real estate goals.

My real estate experience coupled with insight of industry trends ensures that I stay one step ahead of other realtors. I enjoy making sense of the complex real estate market in Southern California, and look forward to teaming with you and exceeding your expectations.

My passion for winning stretches back to my time playing professional baseball, and I know that hard work pays off-let me hit a home run for you! I’m committed to delivering your dream home or selling your current property at a winning price.

Affiliations: California association of Realtors, National Association of Realtors, Relocation Specialists.