A few days ago I wrote about the market environment in which condominiums sell in Downtown Austin. That post focused primarily on market absorption rates for 1-, 2-, and 3-bedroom condos. Today, I return to that discussion, but with the highlight on pricing — or, more narrowly, on the value of pricing a condo properly at the beginning rather than “testing” a higher price as so often happens.
I have written on this general subject before, and always came to the same conclusion: sellers who price right early consistently sell faster and for more money than those who have to reduce their prices one or more times to attract a buyer.
Consider 1-bedroom condos in downtown Austin:
[Note that in my previous research I used just six months of sales history, inquiring directly against our MLS database. The data presented here is from Clarus Marketmetrics, a very good MLS statistics module but one that uses different algorithms than my direct MLS searches. In addition, in order to maximize sample size here I used a full years’ history and included both new and resale condo units. (Very few new units are reported in the MLS, but this is a difference from my last post.)]
This report shows a $50,000 price range that includes the median sale price. Properties that sold without any price changes sold in an average of 29 days for $252,628. Those that required price adjustments were on the market for an average of 161 days and sold for $245,677. The price per square foot in both categories was the same, so the real effect was an extra 4 1/2 months on the market.
These reports of the 2-bedroom and 3-bedroom segments show much the same:
In the case of 2 BR condos, the average sale price of properties that made one or more price changes was actually slightly higher, but the sale price per square foot of condos priced right early was 11% higher than those that tried higher prices at the outset. More importantly, the units that were priced right sold in 32 days, versus 161 days for those that were priced high at the beginning.
In the 3 BR market, sales volume was limited so I used a $150,000 price range that encompassed the most sales. Results: Units that were price right at the beginning sold in 27 days for $1,137,500. Those that were priced high averaged 185 days on market and sold for $1,050,000. That’s more than five extra months on the market to ultimately achieve an 8% lower sale price!
I have done this analysis for many properties in many categories, market segments, and geographic areas in Central Texas, and these results are very consistent. Pricing right always makes sense. Of course, many sellers expect real estate agents to recommend a sale price that will get the home sold quickly, and they assume it’s for the agents benefit, not the seller’s. What isn’t always well explained is that pricing right is in the sellers’ best interests.
The question is: what is the “right” price? That’s a “whole ‘nuther” subject, and one that I spend a lot of time on on this site and in my day to day real estate practice. For now, let’s just leave it at this: pricing to market is the best decision a seller can make, and failing to do so is very likely to be costly — in time and dollars.