First price cut's the deepest

Question:  Allison, my Realtor keeps saying that I should lower my sales price on my condo in Wildernest by $20,000. It's been on the market since May 25, 2010. What do you think?

Answer:  To answer your question, I looked at some national sources to see what they had to say and came across this information from Tara Nicolle-Nelson that has some interesting insight…

“As brilliant as I am (and modest, too, obviously), I'll be the first to admit that no national real estate commentator or expert can give you advice on pricing your home with the same level of expertise and insight into the comparable sales, competing properties and buyers' perception of your home that a local broker or agent can.

Your own agent's advice is especially credible and trustworthy if that agent is a local real estate pro with a track record of closing sales of homes in your market, in a fairly recent time frame.

And despite what the popular media would have you believe, in many ways your agent's interests are highly aligned with yours in that they don't get paid -- at all -- unless and until your home sells. Once an agent has your listing, she has a strong incentive to give you the advice that would get your home sold.

So, the first thing I would ask is whether you interviewed your agent and took the care to verify that she has a history of successfully listing pricing and marketing homes in your area before you "hired" her to list your home. If so, then trust her! If not, it's still possible that she's giving you good advice, but we'll get into that further in a moment.

With that said, it does behoove you to do what you can to understand why your agent is making this recommendation, and to make an informed decision about whether to follow her advice. Questions you should consider, in evaluating her advice to lower your price:

1. Relative days on market. You mention that the property has been on the market more than four months, which sounds like -- and is -- a long time. But how long is it relative to the average number of days a home in your area stays on the market?

Ask your agent to brief you on the average number of days on market; if homes are generally on the market around that long before selling, then you may not have as urgent a need to reduce the price, but do keep in mind that you have well tested the market of buyers out there now and they don't seem to be biting at that price.

2. Seasonality. Also keep in mind that the market is more active during the summer. If it didn't sell at that price over the summer months, the chances it will sell priced at the status quo heading into the fall and winter are very slim.

3. Buyer search behavior. If you agree with your agent that it's time for a price reduction -- as I'm inclined to do, by the way -- but you're not convinced that $20,000 is the magic number, take the way buyers search for homes into account to maximize the exposure your home will get by virtue of this price reduction.

Buyers generally cut their searches off at $50,000 and $100,000 increments. So, arguably, your home would get more exposure to buyers from a $6,000 price cut from $355,000 to $349,000 than it would from a $20,000 price cut from $330,000 to $310,000.

(Of course, if your home's comparable sales indicate a value of $310,000 and it's currently priced at $350,000, then the ideal price cut wouldn't be to $349,000 -- it would be to $299,000!)

4. Your urgency, bottom line and desire to avoid lowballs. The more urgent your need to sell, the more quickly and deeply you should consider cutting your price. To be clear, your insistence on maintaining the current list price does not in fact mean that you will sell it at the price you want.

Conversely, neither does dropping the price by $20,000 mean you are taking a $20,000 hit to your net sale price -- I've seen time and time again where a price reduction hit a home's pricing sweet spot, and generated multiple offers, with an end selling price above the reduced price.

On the other hand, I've seen sellers refuse to cut an obviously overpriced home and end up with nothing but seriously lowball offers from buyers who perceived the seller as being (a) unreasonable and/or (b) desperate.

Here's one final question: Has your agent been telling you that you should cut the price since before you listed it? If her opinion has always been that your current price is too high, then you should consider the market as having proven her right and, again, made the case for her trustworthiness.

If the current list price for your home was the "right" price -- meaning the price that will attract a qualified borrower to buy your home -- it would already have sold. It hasn't, so my opinion is that you should revisit and cut the price, without further ado. How deeply you cut it is up to you.  Inman News 2010.                                           


For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]

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