Is the Price Right?
For sellers who initially do not price their homes carefully and must reduce down the road, they likely will net less upon closing. To walk away from closing with the most money, it is crucial to carefully price a home at the outset of coming on the market.
Will Rogers once said, “You never get a second chance to make a first impression.” That quote not only applies to meeting someone for the first time, it also applies to real estate. When a home is placed on the market, ready to be greeted by buyers, the first impression is everything. Many homeowners spend weeks, or even months, preparing their homes before pounding in the FOR-SALE sign in the yard. Many install new carpet and paint throughout. Deferred maintenance is addressed. The yard is spruced up with freshly planted flowers and a layer of topsoil. The goal is to get top dollar for a home.
Yet, the most critical first impression is the price of a home. Many homeowners want to “test the market” and see if they can procure a higher price than what is suggested by comparable pending and recent closed sales. They push the envelope to ensure they are not leaving money on the table. After all, they can always reduce the asking price down the road, right? Unfortunately, in looking at the data, overpricing is not the best strategy to net the most amount of money possible.
The sales price to last list price ratio is very telling. This refers to the final list price before becoming a pending sale. These are averages, meaning there are exceptions, but the overall trend is stunning. In Orange County, 80% of all closed sales in September did not reduce the asking price. The sales price to last list price ratio for these homes was 100.2%, meaning, on average, a home sold for a fraction higher than the asking price. A house listed at $1 million sold for $1,002,000, $2,000 above the asking price. The median days on the market before becoming a pending sale was only 8, indicating that accurate pricing means way less time on the market.
11% 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%; on average, it took 43 days to become a pending sale. A house that reduced its 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, a surprising 9% of closed sales in September, the sales-to-last list price ratio was 95.0% after being on the market for over two months. A home that finally reduced its price to $1 million sold for $950,000. Everybody would agree that closing at $1,002,000 is much better than $950,000, a mind-blowing $52,000 better.
The data is stunning in looking at the sales price to the original list price ratio. This is the price when a home initially comes on the market before any price reductions. For homes that reduced the asking price between 1% and 4%, the sales to original list price ratio was 94.7%. For example, a house listed originally for $1,030,000 had to reduce the asking price to $1 million to find success and ultimately sold for $975,000, a staggering $55,000 less than the original asking price.
Excerpt taken from an article by Steven Thomas.