Are You Losing Value?

Recent reports indicate that residential real estate values in our region are declining at around 10-12% per year. That means that a $400,000 home is worth $4000 less every month. Therein lies the real danger of overpricing.

Since we know from experience that the first two weeks of a new listing are the most important from a marketing point of view (since many buyers--and agents--only check for new listings when they search), it's important to begin that period at the correct price. "Testing the market" at a higher amount for a "little while" can lead to months of delay in selling the property, since it doesn't appear as new to those looking to buy, even when it eventually reaches the best price point. Once you factor in the economics of a market that's declining, you can see the true downside of waiting longer for a house to sell. It isn't just the carrying costs, or putting one's life on hold, it's dollars and cents--1% per month, as a matter of fact. And that doesn't even take into account the number of sellers who turn down the first offer (almost always the most motivated offer, and the highest), because they somehow forget that they are "testing the market", and start to think of the higher price as the dollar amount they expect to receive. If we had a dollar for every time a seller tells us later that they regret not taking the first offer, we might not even be taking listings that are too high!

More Confirmation on Pricing

The lead article in yesterday's New York Times Real Estate section confirmed yet again what real estate practitioners know, but are often unable to convey persuasively to others. It gave examples of sellers who priced their units aggressively in today's market, and kept lowering the prices without success. It contrasted that with sellers who priced so as to seem to be a "good deal", and told about the bidding wars that have been taking place in such cases.

Underlying this phenomenon is a change in the marketplace from the past: Now buyers, who get more information through the Internet and by looking at more places before buying, are more educated about prices than they used to be. They can tell when something is priced to sell, and they know that they have to move quickly. They also know that, often, there will be multiple offers; therefore, if they want to get the property, they may have to bid over the asking price.

This has happened to us so many times that we can all attest to its effectiveness. We cannot, however, seem to convince sellers that they will actually receive higher offers by pricing the property lower. It's not unlike the psychology of pricing store items at sale prices, to stimulate demand and encourage prompt purchases. Of course, the seller can always reject an offer, if it does not meet his or her specifications. The point is to get offers, particularly to get enough offers to assure that fair market value is established.

Separating oneself from the pack is key in this market. Unfortunately for our business, pricing aggressively does that!