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.
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UK FX Mortgages 06.11.08 at 2:07 pm
All good points but it’s tough when people are in negative equity and the money they lose is the deposit on the house they’re going to rent…
Charleston Real Estate Blog 06.11.08 at 4:42 pm
It appears that WSJ has now added some content from MarketWatch which published the same article the other day. But all in all, it’s good that WSJ is no longer hiding behind a subscription firewall.
As to the 5 signs whether you should reduce the price on your home, you should if:
1) your house has not sold
2) your house has not sold
3) your house has not sold
4) your house has not sold
5) your house has not sold
Charleston Real Estate Blog 06.11.08 at 4:49 pm
@ uk fx mortgage, why sell in order to rent? You still have to have a roof over your head so if you don’t have to sell, why bother; you still have a monthly payment and a monthly rental isn’t that much different than a mortgage payment and in many cases, is somewhat disadvantaged from a tax standpoint. If you are relocating because of a job transfer, that becomes a completely different story.
Personal Bankruptcy Forms 06.11.08 at 8:41 pm
I think people always ask a bit more because they expect people will try to talk them down. The price they will settle at is always lower than the advertised price, just haggle a bit, you’ll see.
Mordechai Boaziz 06.12.08 at 9:25 am
“ten showings should equal an offer”
very interesting statistics and so many thanks for sharing the Wall Street Journal article.
Jayson 06.12.08 at 11:41 am
Nice tips - the only thing that ever matters is price. Even if you have the worst home in miles, at the right price, it will sell.
John Wake 06.12.08 at 12:19 pm
“When a price cut becomes necessary, how much do you cut?”
I think you need a 4% to 5% price cut otherwise, the price cut is “invisible.”
A $2,000 price cut does not generate any, “I better check this home out before someone else buys it” feeling among buyers.
Four price cuts of 1% have far less impact, I believe, than one price cut of 4%.
Rick Belben 06.12.08 at 6:18 pm
The biggest mistake most sellers make is with the initial pricing. They have to get it out of there heads that they have to leave room to negotiate. You need to price it right from the start.
As you mentioned many sellers just follow the market down with their price cuts but never get to the point where it will sell. Price can sure make up for a lot of negatives. Every property has a price it well sell for it is just most sellers are not willing to go there.
Kevin Tomlinson 06.12.08 at 10:08 pm
Jay
Thanks for the info. This one got by me.
Jason Graves 06.13.08 at 6:14 am
Jay-
I have read a number of your comments on Inman and I had to come see your blog for myself. I like your content and that you are focused on providing good stuff for your reader. Too many blogs lose sight of that and just slap content together with little focus. I have learned that too much random content brings too many random readers and focused content can bring focused readers. Who do you think pays better in this business?
Keep up the good work!
Jay - The Phoenix Real Estate Guy 06.13.08 at 12:35 pm
Thanks for all the comments folks… I thought it was an interesting piece.
All of you added some great insight!
Las Vegas High Rise Guy 06.14.08 at 1:56 pm
Las Vegas has the same problem. There are a huge number of homes for sale in that price bracket.
Summit NJ 06.17.08 at 6:51 am
Good article and good tips for sure. Bottom line, the only reason a house doesn’t sell is price. The first two weeks are key. Unfortunately some sellers are still chasing the market and there is alot of competition.
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