Don't price your home too high!
or, How not to lose even more money on your real estate sale in a down market, an illustration
Here's a scenario that happens over and over again. Sellers often have an outdated or unrealistic idea of how their home should be priced, and want to 'test the market' at a certain price point. What many sellers don't realize, however, is that days on market can negatively impact buyers' perceptions of a home and what they are willing to pay for it. As someone who has represented many buyers, I can't tell you how often I have heard, "Well, it's been on the market for 120 days, so they will probably take less". There is an assumption of desperation, and in a buyer's market, sellers who don't play along won't sell their house.
There is a way around this. If you ask a competitive price to begin with, you're much more likely to draw interest from more than one buyer, a situation that always favors the seller. With competitors in the picture, buyers will be more willing to overlook dings or problems that appear in the inspection process, and they might even be willing to bid up the price of property.
Below, I have included a very basic scenario for two homes that are essentially the same in terms of features, location, square footage and condition. Both have mortgage payments of 1500/month for this exercise. In this flat market, both sellers have been told to expect less than the $220s that homes on their street were selling for two years ago. Seller A reluctantly agrees to price his home lower than he wanted, while Seller B sticks to his guns- he still thinks his home should be worth as much as his neighbor got in '05. Although this is obviously not a real situation, it may as well be. As Realtors, we see this happen every day. Remember, your best interests are our best interests too. We want you to get the best price you can get!
125 Main Street
128 Main Street
Lists at $200k
Open house first weekend
Shows 5 times in first 7 days; two offers on 7th day
Sells for $200k, 60 days after closing
Seller pays 2 months of mortgage cost ($3000)
Net is $197k in 60 days (before commissions)
Lists at $215k
Open house first weekend
Reduced to $210k after 2 weeks
Few showings, no interest from prospective buyers Reduced to $205k after another 4 weeks
Showings, but price is indicated as too high- buyers complain about small defects in property
Reduced to $200k after another 4 weeks
Interest has waned; many buyers have already bought and new buyers see days on market as a 'warning'
Reduced to $195k after 4 more weeks
Offer for 90% of list price comes ($175,500k). Negotiations ensue. Buyer is unwilling to go higher than $188k for home on market more than 100 days. Seller agrees to $188k and 60 day closing.
Seller has paid approximately $8000 in mortgage costs at this point. Net is $180,000 in 22 weeks (before commissions)
If you would like more information about how to price your home correctly, give me a call anytime at 314-651-3210.