Should You Reduce Your Asking Price?

Pricing a property right may be the most difficult step in the home selling process. Set it too low and you’ll always wonder if you sold your house short. Price it too high, and it can end up sitting for months on the market, until you face the tough decision of cutting your asking price. Most sellers make the latter mistake. According to recent study published by the Journal of Housing Economics, owners tend to overvalue their homes by an average of 8 percent, with those who bought during the 2004-2006 boom years overestimating their homes value by as much as 12 percent. People who do this want to get the most for their home, but instead ended up turning the selling process into a multi-month marathon that eats up both their time and money—and they end up reducing the price anyway. Another problem with overpricing comes after a buyer makes an offer. His lender will require an appraisal, but if the price that both parties agree to is higher than the appraisal, either the buyer has to come up with difference or the seller has to cut the price. The deal can easily fall through. Overpricing actually gives the advantage to the other homes on the market. Your house just isn't stacking up against the competition, and the longer you wait to drop the price, the more suspicious buyers will get. Definitely don’t wait more than 90 days hoping that the market will magically change or the perfect buyer will move to town next week. Real estate doesn’t work that way. So what do you do when the summer is ending, your home has been listed for months, your life is on hold, and you start to panic? Here are the steps to take to get your house on track to sell. 1. Determine your house’s true value. There’s no Kelley’s Blue Book for houses. Valuing a house is difficult to do with the tools available to consumers, but with a little effort you can come close. First, don’t rely on the “home valuation” tools that give you a single value for your home. Some are notoriously inaccurate. Also, don’t assume that if prices in your area have risen or fallen that your house has followed suit. These are medians of thousands of homes. Each house is unique, has a unique value and changes value at its own pace. Even if local prices have risen, your home’s value may have depreciated. Get fresh comps (comparable nearby recent house sales) to get a feeling for very local value trends. Ask your agent for a CMA, or Comparative Market Analysis, which will give you the perspective of a professional you trust. Also, new tools like Owners.com’s tracking tool update as many as 100 million home values on a regular basis. Even if you went through a valuation process when you listed you home, do it again if you’re not getting any activity. 2. Consider an appraisal. As noted above, if your house doesn’t appraise for the selling price after you accept an offer, chances are good the deal won’t go through unless you are willing to lower your price. So it might make sense to get your own appraisal done, especially if you have had a difficult time finding local comps within the past six to 12 months. An appraisal will cost you $500 or so and there’s no guarantee it will be same as a buyer’s appraisal in the future, but it should be close. You can share your appraisal with the buyer’s appraiser and save him so time at the same time that you increase the odds of getting the value you expect. 3. Be smart about repricing. The fine print of listings today include a history of each home’s pricing as posted on the MLS. The last thing you want to do is have a history of incremental declines over time; it suggests that no matter what your current price, you may not have hit bottom yet. These slippery slopes occur because agents know that if they ask the owner for a small reduction, the owner is more likely to agree to another of the same size later, even though making the larger reduction in one move avoids the “slippery slope” impression. The price cut needs to be enough so that a new group of buyers will be attracted to it. Should you decide to reprice, make a big deal about it. Rewrite your listing narrative to announce the new price and emphasize the value the buyer is getting for the money. 4. The Power of Nine. Buyers don’t look at every house in a neighborhood. They search by price range and pay attention only to those they can afford. Most real estate search engines offer price ranges in increments of $10,000 or more. Take a page from marketing experts and pick a price just below a $10,000 increment that ends in nine, like $299,000 instead of $300,000 or $349,000 instead of $350,000. MIT and the University of Chicago conducted an experiment with prices on women’s clothing. They had three basic prices, $34, $39, and $44. Surprisingly, the $39 item sold the best, even better than the cheaper price of $34. Purchasing an item for $39.99 will seem more of a value than purchasing the same item for $40 even. It’s only different by a penny, but that one penny seemingly takes the price to an entirely lower level, thus increasing the value and the deal. When you reprice your home one small step below a search engine price boundary you’ll reach dozens of buyers who have never seen your house before. The Bottom Line Repricing is a bite-the-bullet exercise. It’s a confrontation with reality that’s not fun but may be necessary. As painful as it might be, don’t procrastinate. You will be much better off making the move sooner rather than later. The fourth quarter of the year traditionally is a slow time for home sales. Fewer buyers are out there and many expect bargains. Should you reduce your price to the right amount, you’ll be sending the right signal and your chances of snagging a buyer will improve.