Why the Pricing of a Home Matters

Now, more than ever, buyers are looking first and foremost for a deal.  The longer a home sits on the market, the greater the tendency for buyers to offer lower prices. 

It’s only logical.  Even on Day 1, most buyers will want to offer less than the asking price.  But if a house has been on the market for months, there is no doubt buyers will tend to offer prices at much steeper discounts.

The real question is, “Does a longer time on market effect the ultimate selling price of a home and, if so, by how much?”

The attached graph shows data collected from home sales in 2011 and how selling prices decline with increasing “Days on Market”

Homes that sell within the first week to the first month sell on average for 97 percent of the original listed price.  But as a home lingers on the market, that percentage drops.

For example, a house that is properly listed at $300,000 and sells within 30 days will likely sell for about $290,000.  But if that same house is listed a bit too high (say at $310,000) and sits on the market for 90 days, it will likely sell for $282,000.  If that home is overpriced even further (say at $320,000) which causes it to sit on the market for 6 – 12 months, that home is likely to sell around $270,000. 

This decline is partially due to the fact we are in a market where values have been falling over time.  In Montgomery county, housing values declined a by about 5% percent in 2011 vs. 2010 and forecasts are similar for 2011 vs. 2012. 

But the larger portion of the decline is attributed to sellers overpricing their home at the outset and then also having to overcome the negative stigma associated with a house that sits on the market. 

Buyers love to ask how long a house has been on the market and, if it’s been awhile, their next question is automatically, “What’s wrong with it?”

Sellers need to understand the three main factors that need to be in order for a house to sell:

1. Price
2. Features/Condition
3. Marketing

While the features/condition and marketing are key elements to a sale, Price Is King. Even with poor condition and poor marketing, an attractive price can still get a home sold. However, a pristine home with excellent marketing can languish on the market due simply to an overinflated price.

Price is king in the sale of a house and setting your price very close to market value is critical these days.  No matter what the condition or how well a home is marketed, todays buyers need to see value in your home compared to the many others that they have already seen and will see.  Otherwise, those buyers will quickly move on to some of those other options. 

Also, don’t forget about the buyer’s mortgage lender. Even if the buyers were willing to pay an above market price, unless they were paying cash, their mortgage company will have an appraisal done to ensure the price is supported by current market data.  In the present mortgage climate, appraisers and lenders are tending to be very conservative with these appraisals.

Overpricing a home even by what seems like a small amount can have a significant negative impact on a seller’s bottom line if the home sits on the market too long.  Overpriced homes do deter buyers.  Take the following example of a home where the market value is $190,000 to $200,000 and the recommended list price is $199,900.  A seller might be tempted to price the property higher but could “shoot themselves in the foot” and the condition and marketing can’t compensate.

Could House 2 get an offer within 30 days and net a price of $195,000 or $198,000?  Yes, it is possible.

It is possible that House 2 could sit for 60 days on the market but still fetch a selling price above the “estimated” $190,147?  Absolutely, it is possible. 

Will House 3 necessarily sit on the market for six months and not get an offer of $190,000 or $195,000?  Maybe … maybe not. 

However, as tempting it is to test the market, the real data demonstrates that a seller is far more likely to achieve a higher final price and sell in less time (and with less anguish) by pricing very close to market value at the beginning of the listing.

The problem is the law of averages will work against a seller who overprices a house and they are likely to end up disappointed with the sale and hurt their bottom line.  Pricing a home appropriately is critical at the onset of listing it for sale.

Another important factor to consider is the carrying costs of the house if the seller has already moved and the house is vacant.  For example, if the mortgage, taxes, and utilities cost $1,500 per month, after six months, the seller has lost $9,000 holding the property.

The keys are to do a great job preparing your home for sale, work with a Realtor you trust who will do a great job marketing your property, and to be honest and realistic in setting the listing price for your home.

Every Wednesday at noon, the Scott Loper Team of Re/Max Realty Group in Harleysville offers some sage advice to potential and current homeowners in our area.  The Scott Loper Team includes Scott Loper, Lisa Loper and Gina Wherry, Re/Max Realty Group, 439 Main Street, Harleysville, PA 19438, 215-256-1200.