It All Boils Down to Price
The data illustrates a clear trend: the greater the price reduction, the lower the seller’s net proceeds and the longer the home remains on the market.
Farmers' Markets are the new craze, with their pop-up tents and a vibrant array of fresh seasonal produce, meats, fish, baked goods, honey, preserves, and handmade crafts. The colorful displays of seasonal fruit are often picked within hours of the markets' opening, offering incredible flavors and freshness. Yet, sometimes they set the price of fruit too high, which deters too many shoppers from making a purchase. When too much fruit sits until it starts to spoil, the price is lowered, often at a heavy discount, to move it. Ultimately, they earn less than they would have if they had priced it correctly when it was fresh and appealing.
Similarly, when a homeowner initially comes on the market after pounding the FOR SALE sign in the yard, the home is fresh to the market. Yet, when a home is overpriced, it deters many buyers from making an offer or even touring the house. It sits on the market with waning activity. When the price is finally adjusted, it is not met with the same fanfare as when it initially came on the market. Instead, it is sold at a discount. Like the fruit that starts to spoil, the homeowner ultimately earns less than they would have if they had priced their home correctly when it was fresh to the market.
Too many sellers in Los Angeles County are initially listing their properties at too high a price. They then have to adjust the asking price to secure a buyer willing to write a purchase offer. The data indicates that starting overpriced and then reducing it results in the seller walking away with less money. 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 astonishing. In Los Angeles County, 69% of all closed sales in September did not reduce the asking price. It was 78% in March. The sales price to last list price ratio for these homes was 99.0%, meaning, on average, a home appropriately priced sold close to its initial asking price. A house listed at $1 million sold for $990,000, $10,000 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.
12% of all closed sales reduced their asking prices between 1%
and 4%. The sales-to-last list price ratio for these homes was 97.4%; on
average, it took 57 days to become a pending sale, nearly two months. A house
that reduced its list price to $1 million sold for $974,000, a considerable
$16,000 less than the homeowners with no reduction.
For homes that reduced their asking prices by 5% or more, 19% of closed sales in September, the sales-to-last list price ratio was 96.1% after being on the market for 84 days, nearly three months. A home that finally reduced its price to $1 million sold for $961,000, a staggering $29,000 less than the homeowners who did not need to reduce the asking price.
The sales price to original list price ratio reveals the difference between a home’s original asking price and the value buyers are ultimately willing to pay. 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% and 4%, the sales price to original list price ratio was 94.6%. 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 $974,000, an astonishing $56,000 less than the original price.
Homes that reduced the asking price by at least 5% had a sales-to-original list price ratio of 86.1%. A house initially listed at $1,116,000 had to lower the asking price, often more than once, to $1 million to find success, and ultimately sold for $961,000. That is an overwhelming $155,000 less than the original asking price.
Homeowners who meticulously
arrived at the asking price had a substantially higher chance of selling
quickly and very close to their asking price, often at or above the asking
price. Sellers who were exposed to the market for a long time ultimately had to
adjust the price. For the most part, even after dropping the asking price,
sellers accepted an offer below their final list price. The dotted line
represents the trend line, illustrating how a home's final sales price
typically drops as it sits on the market longer.
Setting an accurate initial asking price is one of the most critical steps for a seller to secure an interested buyer and achieve a successful home sale outcome. That does not mean adding a little bit extra to the price to leave room for negotiations. This is also not the year to “test the market” and attempt to see if the market will pay a much higher, unrealistic premium price for a home. There is too much seller competition, and the market is moving at its slowest October pace since tracking began in 2012. There are currently 14,573 homes on the market, 22% more than last year’s 11,992, and 68% more than 2023’s 8,678 homes. Today’s Expected Market Time is 116 days, compared to 92 days last year and 79 days two years ago.
Most buyer activity occurs during the first 10 days a home is listed FOR SALE. Sellers only get one opportunity for this initial first impression. Buyers are waiting on the sidelines for anything new that hits the market. They examine every photo and all the details, including bedrooms, bathrooms, square footage, condition, upgrades, location, lot size, amenities, year built, garages, storage, and view. Yet, the price is by far the most important. Buyers decide whether or not to see a home based on its price.
It is revealing how 37% of all active listings have reduced the asking price at least once. Many sellers mistakenly expect a noticeable boost in showing activity after lowering the asking price. When a seller reduces the asking price, it is not met with the same level of anticipation and excitement as when it was initially placed on the market.
Today’s market is not instant. Sellers must price their home for success by scrutinizing every comparable pending and recent closed sale, carefully arriving at a home’s Fair Market Value.
