The Type of Market and How it Affects Searching for Price

I recently wrote a blog on “Multiple Offers” and how two different agents viewed them.  I want to explore one of their comments further.  One agent said that multiple offers are the result of pricing a property too low.  While I don’t agree, I do feel that there is something to this.  Let me explain.

Suppose an agent is working with a buyer “pre-qualified” and comfortable spending up to $300,000 on a house.  Pick any price.  What “price range” should they search?  I say “range” because no one would search for one specific price.  You can start at a certain number or go up to a certain number.  This is why pricing is different than before we had the Internet.  Agents have to “factor in” what a consumer may be thinking rather than trying to interact with the mindset of an experienced, trained and educated agent.  Let’s start with the minimum first.

For some buyers, such as investors, I do not set a minimum.  They may be open to considering whatever is in their search results and open to driving by or studying what I send them to eliminate houses that do not appeal to them.  Buyers looking for their next home, especially if they are financing the sale, may need to pick a starting point to meet their needs and abilities as well as the requirements of their financing.  Some houses simply need too much work.  How far they look below their “top number” depends.  Sometimes the areas that interest them or the features they include will provide some guidance.  Otherwise, they may evolve into “knowing” that anything below $x is a waste of time.

What about the top end?  They are “pre-qualified” and comfortable spending “up to $300,000” so why wouldn’t that be the number?  This is where it gets tricky.  The market will suggest or dictate what you should do if you want to succeed.  In a buyer’s market, if houses are getting less than full price, you can search higher than their top number.  That does not guarantee success as there may be competition even in “slower” moving markets.  A seller may still want full asking price.

In a seller’s market, when houses are getting more than full price, you may want to search lower than $300,000, expecting to have to raise your offer, if given the chance.  In a hot market every house will not sell so this is not a blanket statement but you may not succeed by offering full price.

The MLS offers data comparing the selling price to the opening and final asking prices.  However, “data integrity” may be lacking if incorrect information is entered, possibly impacting the overall report.  An agent has to look “within the numbers” to see what is really happening with pricing.

A buyer needs to know their financials, including their comfort level, and an agent needs to interpret the market so that they can properly advise their client.  How much to offer is still the buyer’s decision.  In some markets, offering “full price” will get a house “under contract”.  In other markets, the “asking price” is where the bidding starts.  The price is either a ceiling or a floor.  Ultimately, prices have to appeal to buyers, agents and appraisers.   Even cash sales have some parameters.  Sellers set the asking price and buyers determine the value.

That being said, some sellers and their agents purposely underprice a house to expose it to more people in the hope of generating multiple offers.  As I often say,  Real Estate is not retail!

There is no time for inexperience, empty promises or false expectations.

HIRE WISELY:  We are not all the same!

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When Should You Reduce Your Asking Price?

That depends.  Depends on what?  There are several things to consider.  Let me discuss two.

First, pricing is an art and not a science.  No matter what data and information went into determining your asking price, the price is an educated guess at best.  Is it realistic or hopeful?  If there is little or no information to rely on, it might just be a shot in the dark.  Either way, what would convince you to consider lowering it?  Some sellers think a reduction is the same as a loss when it might well be the difference between selling or not.

I suggest that a seller give this some thought at the beginning of the market process.  Their thinking may change but waiting to consider how to react to the market when a house is on the market can be stressful and cause a seller to miss a great opportunity.  Some sellers measure success by showings.  However, a lack of showings may the result of poor or ineffective marketing.  What about a house that gets many showings but no offers?  That is likely a price problem as it suggests that buyers found more for the same price or the same for a lower price.

Second, a listing agent needs to have a discussion about pricing.  The points already mentioned would make a great conversation.  In addition, a market analysis will provide historic information as well as some insight into what is happening now, both of which have a degree of subjectivity and built-in error.  As part of looking at the market and evaluating what the owner is selling, a listing agent needs to know their seller-client’s motivation:  is it time or money?  If the seller is committed to selling sooner rather than later, a price reduction would be more likely to be considered.  Of course, in that instance an asking price might have been aggressive at the start.  If it works, great.  If not, some sellers will think they have already agreed to accept less than the market value.  If they prioritize the amount they receive, they may be reluctant to reduce at all and if they agree, it could take time.  Again, having this discussion early on will save time later and may prevent problems.

Historic sales are just that.  Depending on the time frame you use, they may cross months, seasons and even years.  Even if a property settled yesterday, when was the offer made and negotiated?  It could be weeks or months old and not indicative of the current market.  A look at the pricing for houses under contract, while not providing the number the seller accepted and not being subject to an appraisal, will at least tell you what one buyer found compelling enough to consider.  You may see a trend higher than or lower than the settled pricing.  Of course, any agreed-upon price could be quite different from the then-current asking price and you won’t know that until after settlement.

Depending on the market, I believe that when a new listing hits the active market, it has its greatest chance of attracting interest as there may be more prospects looking at that time than will enter the market in the next few weeks.  It has been my experience that new listings can and should get a flurry of activity quickly and then, if activity or interest has been lacking, the seller has a decision to make.  Generally speaking, activity drops as the supply of buyers reforms, meaning new buyers come on the market, sales fall through or buyers have shopped and are ready to make an offer.

Many think you should give a house a week or two to gain maximum exposure to attract most of the buyers.  That makes sense.  After all, if you are satisfied with the marketing, meaning that agents and buyers will be able to find your property in their search results, a lack of activity generally means that buyers are not interested or they are simply more interested in other properties.  Again, activity is a poor measure if an owner wants a sale.  Showing your house to an endless parade of lookers gets old fast.

If buyers can find houses similar to yours for a lower price, you either need to meet the competition or wait until the competition has been sold.  If they can find houses priced like yours that offer them more, assuming you will not make improvements, you need to re-price to offset what you do not have.  Some sellers will consider making upgrades but that is risky and most will cost you more than they are worth.

The bottom line is that pricing is a tool.  It is used to connect buyers to properties.  However, Real Estate is NOT retail:  the price is generally considered negotiable.  The market helps determine whether the asking price is a “floor” or a “ceiling”.  Ideally, a price should take into account your location, the features and the condition while being competitive with other properties.  Owners determine their asking price and buyers determine the value.  If you believe that the price is the reason people aren’t coming or aren’t making offers, you can re-position your house with similar competition.

The real question is how much do you reduce?  If you are getting showings but not getting any offers or only low offers, the situation may not be as dire and perhaps your agent can contact the buyer agents who have visited to see if there is a price that would work.  A good buyer agent will initiate contact if their buyer-client has interest but not at your asking price.  A good listing agent won’t wait to see if you get any feedback. 

I believe that your first price reduction should be substantial and that you need to review the competition, stay engaged as the market changes and select a price that makes sense from a competitive standpoint and a technology standpoint.  Some houses need more than one reduction either because a house is simply priced too high even after being reduced or because the market changes.  When you pick your price, you pick YOUR competition.  There is no magic to it:  a reduction either changes “your luck” or it doesn’t and needs to be looked at again.

There is no time for inexperience, empty promises or false expectations.

HIRE WISELY:  We are not all the same!