What is probably my favorite “paper”, The Wall Street Journal, published an article on Sunday titled, “Get Real With Your House Price”.
It’s relatively brief, but contains some good info. The article points out five signs that indicate your home may be overpriced:
1) Not enough showings
This is a prime indicator. But it’s a little “diluted” in the Phoenix real estate market because of the shear number of homes available for sale.
Let’s say you tell your agent, “I’m looking for a 3 bedroom, 2 bath home between $200 – $250K in Gilbert.
*poof!* You’ve got 495 homes to go see. Throw in Chandler (337 homes) and Mesa (659 homes) and you’ve got almost 1,500 homes to chose from in that fairly narrow band of pricing.
And that means if you’re selling a home in the East Valley, you’ve got 1,500 other homes you are directly competing with for buyer’s eyes and money.
Sometimes homes don’t show because there is a ton of competition.
2) Some showings, but no contract
Getting people to look at your home is step one. Getting people to make an offer on it is a whole ‘nuther story. An oft-quoted rule of thumb (including in the WSJ article) is ten showings should equal an offer. But I’ve seen that range from one showing to dozens. There is no hard and fast rule, but clearly if your are getting traffic (qualified traffic, not just “looky-loos”) and no offers, then something is amiss.
3) Similar homes are now selling for less
In the Phoenix market, prices are generally declining. That means that what you priced your home at last month likely isn’t what the market considers your home worth today. Your price reductions may just be keeping up with declining market value, not positioning your home to sell.
4) Repeated negative feedback
Getting feedback from showing agents ranges from relatively simple to excruciating. Getting honest feedback is even worse. Ask 100 agents for feedback, and 95 of them will tell you, “My clients liked the home, but they want to look at more before they make a decision.” (In fairness, that is pretty much typical these days.) Rare is the agent who will give you brutally honest feedback. And let’s face it, even if you get something like, “It’s horribly overpriced”, “what were your clients thinking when they painted that wall” or “the home reeks of B.O.”, none of that should come as a surprise to the seller. A good listing agent will give you plenty of feedback before the home is even listed. There shouldn’t be any startling revelations on home feedback.
5) You’ve cut the price, but not enough
Here lies a tricky question. When a price cut becomes necessary, how much do you cut? I have seen, and you can’t make this up folks, price cuts of $1 a day, every day. Why would someone do something so ludicrous? To game the system. Agents can set up MLS notices for changes in property. Repeated miniscule price reductions serve no purpose other than to artificially get a listing on the “freshly revised” hot sheet.
The amount to cut is a fine balance between the needs of the sellers to net an amount, the speed at which they need to sell, and the perception of the market as to the value of the home.
And remember, it is the market that determines your home value. It’s not what your neighbor sold his home for, it’s not what you wish it was worth, it’s not even what an appraiser says it is worth. It’s what buyers in the market say it’s worth. Period.
There is no question; pricing in this market is key. It’s true though that any home can be sold if the price is “right”. Don’t believe that? List your home at 25% under what recent and true comparables are selling for. Your home will sell in days. Granted, no one wants to leave 25% of their homes value on the table, but it will sell.
The trick is determining a price point that is attractive to the buyers in the market that will net the seller as much as the current market will bear.