Primary Pricing Factors for Real Estate Sales

There are all sorts of factors that go into pricing your home. Here are the main ones. I'm focusing here on the "Exterior" things that factor in to a homes listed price, not the "nuts and bolts" aspect of it, which is location, size, and condition. We're also going to focus on what to do after your home doesn't sell in the first weeks, but some of that is predicated on what you did at the start of the process.

 

  1. Home Seller Expectations. This one is the elephant in the room. Oftentimes, I'll be with buyers and they'll see a home that they think is way overpriced, and they ask me: "What are the sellers thinking?" or "What is the listing agent thinking". It can be hard to know. In general, though, it is worth remembering that buying is generally a "logical" decision, but selling is an "emotional" decision. Said another way, you buy a house, but you sell a home. Sellers are often quick to point out the benefits of their property - "extra large lot" or "best neighborhood in town" or "finished basement" but often can't put their finger on the weaknesses. That's not a bad thing, necessarily, it means they love their house, 

    No interior plumbing?  That's not a rustic

    "feature!"
    and its less desirable features aren't important to them. But if the seller in such a situation is left to price their home, they can often employ a "reach" strategy, where the home looks overpriced to competitive properties. While such a strategy is occasionally deliberate (and often employed with new construction), many times it is not.
  2. Real Estate Local Market Direction. Is the market going up? Is it going down? Is it holding steady? These are factors that need to be considered when you're pricing your home. These trends are easy to spot over a historical six month timeline, but harder to ascertain at a microlevel. Will next month be busy or quiet? Most home sellers have a very jaded view of when the market will be "best", but it's often not accurate, or even incomplete.
  3. Seller Timeframe. Sellers often tell me that they are in "no rush". But after just a few weeks, they get antsy if their home hasn't sold. Knowing that you could wait is not the same as knowing that you CAN wait. The longer you can wait, the more patient you can be with a max pricing strategy. But the waiting is hard. In addition, some sellers can not wait. Some have already bought a home, and some are relocating, and some have encountered financial difficult of some kind. Playing it slow when you're in a hurry is very stressful. The more I know about your true timeline, the better we can gameplan and talk about realistic timelines.
  4. Home Uniqueness. The more unique a home, the more unpredictable the price and wait times are going to be. Log cabins, Post and Beam homes, even contemporaries and antiques have small buyer segments of the overall market. It can take longer to reach them. On the plus side, they are passionate about what they want, and will pay market price for properties that they can't easily find anywhere else. Bottom line, uniqueness is as much of an asset as it is a problem, but it reduces the predictability of the timeline that you might have ahead of you.

 

So When do I drop my Price?

Once you've assessed the factors above, we can really talk about how quickly you need to drop the price. For me, it's time to drop the price when I realize that it isn't working, and isn't likely to work in the future. This is easiest when there are many comparables and a few of them sell while we are on the market. If the homes are similar, and you're not being chosen, then the market has voted on your price, and it's too high. New entrants will probably come in under you (on a relative basis) trying to avoid the situation you are in - on the market and no offers - so simply waiting it out is often a poor strategy.

 

This gets harder, of course, if there are no sales. Let's say there are six comparables in a marketplace. Three months go by, and two home sellers come on the market, and none sell. What does that tell us? One of two things. Either A) there were no buyers in the timeframe who were able to purchase in that price range. or B) ALL the houses are overpriced. It can be hard to know which is true. Invariably, some of the sellers will start moving prices down, but that could be a poor strategy, as those sellers would have sold - for higher home

Timing the price reduction is key

to getting noticed and fixing a

pricing problem all in one swoop.

prices - if they had held out and waited for the buyers to return. How can you tell the difference between the two scenarios? Feedback. I try to contact each one of my showing agents personally, to discuss the buyer and their situation and motivation - not just whether they liked the house!! If you get a number of showings where they "just started" or "poking around", well, these aren't real buyers. Thus, it may make sense to wait.

 

The hardest situation, of course, are when there are no comparables. If your home is suitably unique, you could find yourself in this situation. You have to get more creative in these situations, and feedback is critical. You also need to look at the overall market, and re-assess your timeline. The more of a hurry you are in, the more sense it makes to drop the price where you can move on, before your house gets stale.

 

You've probably noticed that none of this has a simple, formulaic timeline. Some folks believe if it doesn't sell in three weeks, you drop the price. Another three weeks? drop the price. Three weeks from there? Drop the price. Drop it enough, and you'll be right, eventually, but this simple to execute strategy rarely benefits the seller, especially in a slow market. At some point, you are the best financial option on the market, and you should stay put. The truth about real estate, is that the VELOCITY of a market is important. Some markets (and some houses in those markets), generate a lot of activity and a lot of showings quickly. If everybody passes, that's your indicator that the price is wrong. But oftentimes, we're dealing with the reverse - homes that don't sell quickly, even in up markets, or markets that are on hold for a bit. If you follow the blog, I'm sure you've seen many "stalls" in certain towns, where things sell very quickly, and then the sale slow to a trickle. Can't tell you why this is, I can just tell you it is so, and you need that information to price your home accordingly. I've had many conversations with sellers where they ask me - "is it time to drop the price on my house?" and I have said NO. This patience is usually rewarded and my sellers are often compensated accordingly.

 

Strategies to do Carefully, or Perhaps not at All

Constant Drops: Along the formulaic pricing lines, you have the "drop the price by X amount every week until it sells". The problem with this strategy is by the time you do your fifth price reduction, everyone who can see your property on line has gotten bored with it. You'll get stale long before you should, and stale houses sell for less. Marketing homes continuously fatigues the marketplace, making each new showing incrementally harder to get. Generally not recommended.

 

Under pricing: If you're in a hurry, and the market is good, and the home has high predictability, you could be a candidate for underpricing. This sells a home quick, and its designed to get multiple offers right away and end the process. If the market is bad - or the home has less predictability - you could end up with one offer, or no offers, and have to deal with a lower sale price than you might get with a traditional strategy. Bottom line: It's not without risk.

 

Overpricing - but ready to deal with lowballs: This "you won't get it if you don't ask for it" mentality has a fatal flaw. FEW buyers write lowball offers (considered to be less than 92% of the purchase price by me). Why? I don't know, but they just don't. Overpricing eliminates too many candidates for my liking, but, as with all strategies, there could be occasions where this makes sense. But they are rare.

 

Wait 'em Out - It's good to be patient, but if the evidence is there the price doesn't work, you need to move on. As noted, it's not easy to figure out when that is, but it can be quantified if you're looking carefully and gathering the information you need to make a solid decision. I've seen many sellers just sit, and sit, and sit. The market time builds up, buyers think you're unreasonable, and you can be stuck for far too long. It's hard work showing a home, no reason to make it a hard road with little hope of a successful conclusion.