Everybody expects their house to sell quickly when they try to sell it. But what happens when it doesn’t and is sitting on the market? If you’re considering reducing the price, know that the longer a home is on the market, the lower your chances are of selling it for list price.
Sellers that accept an offer within the first week of listing have an almost 60 percent chance of selling for list price. During week two, it’s 50 percent, and then it continues to drop over time.
Price your house correctly from the start
Hopefully before you get to the point that you feel you need to drop your price, you’ve priced your house correctly to begin with. With the power of the internet, it’s extremely important to make sure you price your home accurately. These days, buyers are smarter and more well-informed than ever before. And if a buyer thinks a home is overpriced, they will most likely decide to look elsewhere.
Comparative Market Analysis
When you work with a real estate agent, they will provide you with a comparative market analysis (CMA) which is simply a compilation of the most recent sales in your area. A CMA will factor in things such as home details, days on market, and the final sale price.
Even if you are selling your home for sale by owner (FSBO), you can usually find a good estimate of your home’s value online. However, it’s okay to contact a few real estate agents and request a comparative market analysis (they are usually free). Be aware that you will be getting a lot of follow up calls from agents if you pursue this route. Additionally, it can sometimes make sense to hire a professional appraiser (which ranges from $300 – $1000) as they can provide you the true fair market value of your home.
If you do search for comps on your own, note that comparable properties should:
- Be within one mile of your home – You want homes to be close to the home you are pricing because of external factors like proximity to stores, parks, schools, etc.
- Have sold within the last 3 months – The market is always fluctuating, so it’s better to compare your home that sold within a close time range to when you are pricing to mitigate the risk of not pricing your home accurately.
- Similar age as your property – Homes change in style and quality over time, so ensuring the home you are pricing is similar in age to comparables is important.
- Similar square footage – You want the square footage to be very close to the house you are trying to sell. Preferable within 10% of your home. Homes usually increase in value as size increases so it’s important to compare homes that are similar in size to the one you are pricing.
What factors affect prices of homes for the current housing market?
Seasonality – In most of the United States, spring and summer are often considered to be the best time to sell a home. Usually, the weather is nicer and families want to make their moves while their kids are out for summer break. Fall is the second-best time period to sell a home and then winter is the slowest season. Winter is the worst season to sell because people are busy with the holiday season and the weather is often way worse than spring months.
Inventory – How many homes on the market is a strong indicator of how fast your home will sell and for how much. The more homes that are on the market, the less likely it is to sell for a price that you want. This is because supply outweighs demand.
Buyer’s market – If it’s a buyers market and supply outweighs the demand, you’ll need to set a price point slightly lower than other homes on the market since there are more homes for sale than there are buyers.
Seller’s market – When it’s a sellers market, then demand outweighs the supply of homes, so you can list your home slightly higher since there are more buyers competing for less homes.
Neutral market – A neutral real estate market means that supply and demand have reached an equilibrium where there are an equal number of buyers and an equal number of sellers. This means that a final sale price will most likely match what the market is indicating.
Indicators your home needs a price adjustment
If you’ve been meticulous with your research and preparation, and your house still isn’t selling, consider these things when you consider a price cut:
Nearby comps are trending lower
Take a second look at other similar homes for sale in your neighborhood. Did you adjust properly for the comparative market analysis you’ve already done, or are things changing faster in your local market than your analysis could predict?
Offers are not coming in
While there are multiple possible reasons why nobody’s offering on your home, price can often be the main one. If buyers feel like they can find a similar home at a better value, they’re unlikely to put in an offer. If people are viewing your listing online but not submitting offers, or if you’re getting open house attendance with no results, maybe your price is the problem.
Showings are few
Foot traffic coming through the door is a great indicator of the attractiveness of your house price. Open house traffic and showing traffic tend to drop off after the first two weeks, so you’ll know pretty quickly if your price isn’t working for buyers.
Appraisal was low
Smart sellers pay for their own appraisal before they list as a way to get a learned opinion on an appropriate list price. If you haven’t gotten an appraisal already, you might want to do that now before changing your price.
If the home appraises below what you were asking, then you’ll know what’s causing the offers to not flow in.
Next steps in reducing your price
Check out other listings again
Pull up pending sales and find ones that had price reductions. How many days were they on the market before the price was reduced? And find out how much of a price reduction was made. You won’t know the sold price, but you can determine a rough average of prices. Don’t pay attention to active listings that don’t have price reductions, unless they’re similar to yours.
Run side-by-side comparisons with active listings near the price point you’re considering dropping your price to. Price your home so it falls near the bottom of the houses you’re comparing. Or if you’re really determined, price it less than anything else listed on your local market.
Properties that are priced below what buyers are already quite willing to pay will likely then receive multiple offers. In many cases, it’s common to see price wars develop among buyers who are competing, which then could result in an accepted offer for more than list price. Since this can be tricky, work with your real estate agent to ensure you’re approaching this correctly. If you do this right, you’re not really reducing your price after all!
Consider a New Listing
You also might want to take your home off the market and put it back as a new listing at a different price so your reduction isn’t so evident to agents or prospective buyers that look at your listing. An entirely new listing looks new and exciting to a buyer, and new buyers come into the market all the time. Additionally, not every agent or buyer studies the history of a listing, so this strategy could possibly help you avoid the stigma of a price reduction.
Another way to price your home correctly
As with anything in life, there’s not just one secret to making things click. Pricing correctly certainly isn’t the only thing necessary to sell a house. But it is the single most important thing you can do when getting ready to sell. So do yourself a favor and make sure you price a house right from the beginning to avoid difficulty later.
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