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Market News and Trends

Pricing Homes To Sell


Real estate professionals are accustomed to talking with prospective home sellers about the market value of their homes.  Many sellers are absolutely certain that their homes are unique, and are therefore worth more than all the “comparable” homes that have sold in their neighborhoods.  Many also believe that a real estate agent’s only objective is to underprice their property for a quick sale/commission.  As a consequence, many sellers and Realtors® agree to “test the market” at a higher price than a market analysis suggests.  After all, you can always reduce the price, right?  You certainly can’t increase it!  This article offers some useful thoughts on that whole conversation:

Sellers Have Little Leverage

Real-world market data offers some useful thoughts as well.  The table below summarizes sales single family home sales over the past twelve months in Austin:

  No Price Changes 1 or More Price Changes Difference
Price Range  Avg. Sale Price   Avg
$/SF 
Avg Days On Mkt Avg. Sale Price Avg
$/SF
Avg Days On Mkt Avg
$/SF
Avg Days On Mkt
$75,000 – $100,000  $        88,547  $    73.06 32  $    87,434  $    69.95 118 -4.3% x 3.7
$150,000 – $175,000  $     162,108  $  107.78 24  $  162,500  $  101.06 90 -6.2% x 3.7
$225,000 – $250,000  $     236,643  $  120.06 25  $  235,980  $  116.30 98 -3.1% x 3.9
$350,000 – $400,000  $     373,870  $  141.62 33  $  373,384  $  132.08 124 -6.7% x 3.8
$450,000 – $500,000  $     470,252  $  157.43 26  $  471,746  $  153.02 126 -2.8% x 4.8

As noted in the linked article from SmartMoney.com, the first two to four weeks of a listing are critical.  That’s when a new listing attracts the most interest, and when potential buyers “slot” properties in their minds relative to competition.  Price-reduced homes in later weeks are less noticed than new listings entering the market at the same time.

The table above covers the busiest market segment in the city of Austin — $150,000 to $175,000, representing about 12% of all sales in the past year.  It also summarizes the $225,000 to $250,000 price range, which includes the city’s median price in the past twelve months.  For comparison and validation I also checked market segments above and below those price ranges.

Note the critical and consistent features in the data above:

  1. Properly priced homes in the city of Austin sold in an average of about 30 days.
  2. Properly price homes sold for higher prices than homes that required later price reductions.
  3. Homes that required one or more price reductions before attracting acceptable contracts were on the market for 4 to 5 times longer.
  4. Homes that required one or more price reductions before attracting acceptable contracts sold for 3% to 7% less (per square foot) than properties that wer priced right to begin with.

Occasionally, “testing the market” may pay off, but statistically it is a predictable path to a lower priced sale than proper preparation and pricing would yield.  In addition, home sellers who wish to “test” a high price can generally expect to make three more mortgage payments than their neighbors who elect to “just get it done.”

Of course, each seller can and should make his or her own decisions based on their own needs and priorities, and the best available market data.  The benefits of proper pricing, however, a amazingly consistent.  This fact of real estate sales is worth keeping in mind. 

About Bill Morris, Realtor

Many years of business experience (high tech, client service, business organization and start-up, including 18 years in real estate) tell me that service is the key to success and I look forward to serving you. I represent both buyers and sellers throughout the Austin metropolitan area, which means first-hand market knowledge is brought to bear on serving your needs. Learn more about my background and experience, my commitment to my clients, my profession, and to the real estate industry at CentralTexasHomeSearch.com.

Discussion

4 thoughts on “Pricing Homes To Sell

  1. Nice blog Bill. What do you think about pricing your property just below the market, especially in a falling market, and letting multiple offers bid the price up the the market price? To me, this stimulates interest in the property and shows buyers that you are serious about selling.

    Posted by Mr. Bubble | July 20, 2010, 8:50 PM
    • In a falling market most sellers really have only two choices: (a) either price ahead of that curve and get their property sold, or (b) chase the market all the way to the bottom with repetitive too-small price reductions. Sellers make their own decisions for their own reasons, but if the objective is a successful sale then getting it done sooner rather than later is almost always preferable.

      Posted by billmorrisrealtor | July 20, 2010, 9:11 PM
  2. What I mean is, why not price well below the market, enjoy a flood of offers, and create a “buzz” about your listing?

    Posted by Mr. Bubble | July 20, 2010, 9:26 PM

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