Meticulously Arriving at Price
Setting an accurate, initial asking price is one of the most critical steps in a seller securing an interested buyer and achieving a successful outcome of the sale of their home.
It takes months of preparation and a detailed step-by-step approach for anyone looking to run a marathon for the first time. Most marathon training plans range from 12 to 20 weeks, with the weekly mileage ramping up steadily until peaking at 20+ mile runs. The long, arduous process includes proper nutrition, appropriate footwear, plenty of stretching, good rest, and putting in miles and miles of workouts three to five times per week. The occasional runner who opts to show up to the starting line of their first marathon with very little training and forethought will probably not finish, and the risks of injury are high.
For the homeowner looking to sell their home, it takes careful preparation and a step-by-step approach, just like the first-time marathoner. Addressing deferred maintenance, from a fresh coat of paint to new light fixtures to new flooring, is essential in enhancing a home’s allure. Sprucing up the curb appeal with topsoil, flowers, new plants, and a fresh coat of paint on the garage and front doors may be an additional necessary step. This attention to detail is often suggested by a seasoned, carefully chosen, professional REALTOR®. The goal is to maximize a seller’s net proceeds with a successful closed sale. The final and most important crucial step is to arrive at the asking price.
Arriving at the ultimate asking price is not guesswork. There is no need to pad the price for future negotiations, which will ultimately lead to becoming overpriced without success. Additionally, sellers wishing to “test the market” in today’s much slower-paced housing market will languish for quite some time, unable to cross the finish line. The best approach is to spend as much time as is needed to carefully consider all recent pending and closed sales.
Buyers are savvy. They will scrutinize every detail of a home before climbing in a car to take a closer look at a home: the pictures, virtual tours, condition, upgrades, amenities, style, curb appeal, age, location, and, most importantly, its price. Price is the most critical first impression. Sellers only get one shot at making that first impression. After the initial seven to ten days, most buyers have “seen” the home. Armed with their favorite real estate app, they initially tour the home electronically. They then decide to either schedule a showing appointment or move on and wait for the next home that pops up. The longer a home is on the market, the less fanfare and excitement it receives. Even if a seller reduces the asking price down the road, it is not met with eager buyer anticipation and enthusiasm like it does when it first hits the market. Currently, 32% of today’s active listing inventory has reduced the asking price at least once.
Yet, the data illustrates that starting overpriced, requiring a reduction to secure success, results in the seller walking away with a smaller net proceeds check. The sales price to last list price ratio is very revealing. This refers to the final list price before becoming a pending sale. These are averages, meaning there are exceptions, but the overall trend is eye-opening. In Los Angeles County, 74% of all closed sales in October did not reduce the asking price. It was 83% in May. The sales price to last list price ratio for these homes was 99.8%, meaning, on average, a home appropriately priced sold close to its initial asking price. A house listed at $1 million sold for $998,000, $2,000 below the asking price. The median days on the market before becoming a pending sale was only 17, indicating that accurate pricing also means considerably less time on the market.
11% of all closed sales reduced their asking prices between 1% and 4%. The sales-to-last list price ratio for these homes was 97.6%; on average, it took 55 days to become a pending sale. A house that reduced its list price to $1 million sold for $976,000, a substantial $22,000 less than homeowners with no reduction.
For homes that reduced their asking prices by 5% or more, 15% of closed sales in October, the sales-to-last list price ratio was 96.0% after being on the market for 78 days. A home that finally reduced its price to $1 million sold for $960,000, a staggering $38,000 less than homeowners who did not need to reduce the asking price.
The sales price to original list price ratio reveals how far off many sellers are in considering a home’s actual market value. This is the price of a home when it initially comes on the market before any price reductions. For homes that reduced the asking price between 1% to 4%, the sales price to original list price ratio was 94.8%. For example, a house initially listed at $1,030,000 had to reduce the asking price to $1 million to secure success and ultimately sold for $976,000, an astonishing $54,000 less the original price.
Homes that reduced the asking price by at least 5% had a sales-to-original list price ratio of 86.4%. A house initially listed at $1,110,000 had to lower the asking price, often more than once, to $1 million to find success, and ultimately sold for $960,000. That is an overwhelming $150,000 less than the original asking price.
The data is loud and clear. For sellers to net as much as possible at the closing table, it is essential to carefully arrive at a home’s Fair Market Value no matter how much time and effort it takes. It is wiser to spend hours sifting through all the most recent comparable pending and closed sales, carefully considering a home’s condition, upgrades, amenities, and location, than to linger on the market without success, left with a decision to reduce the asking price or throw in the towel and pull the home off the market. In other words, the most successful home-selling approach is meticulously arriving at the initial asking price.
