Careful Pricing is Crucial
The data demonstrates that improper pricing results in sellers walking away with less money and much longer market times.
Ticket scalping is not for the faint of heart. The goal is simple: sell tickets for more than what was originally paid, but doing so requires careful, strategic pricing based on supply and demand. When a price is set excessively high and nobody bites, it often has to be adjusted. The longer a scalper holds onto a ticket, the more inclined they are to reduce the price even further. In some cases, their expectations are so unrealistic that on the day of the event, they are forced to slash the price dramatically a few hours beforehand, often below face value, to avoid being left with a worthless ticket.
Similarly, for sellers, careful, strategic pricing is critical in achieving success. Overprice, and a seller languishes on the market due to unrealistic expectations. The longer a home sits on the market, the less fanfare and excitement the home generates.
Today’s buyers are educated and know their specific market. They tap into their favorite app morning, noon, and night, waiting for the next new property to hit the market. As soon as one does, buyers view the virtual tour, they scrutinize the property description, all the details, and every photo, and then they look at the price. They look at the home’s location, condition, upgrades, and amenities, then analyze its asking price. This is a home’s first impression, and sellers only get one shot at it. Based on all these factors, buyers decide whether to tour a home or skip it altogether.
Far too many sellers are initially pricing their homes too high. They are either overzealous, mistakenly believe they need to leave room for negotiations, want to “test” a price, are struggling to remove their emotions from pricing the “family home,” or did not spend enough time methodically arriving at the price. They then have to adjust the asking price to secure a buyer willing to write an offer to purchase. An eye-opening 30% of the active listing inventory has reduced the asking price at least once.
The data reveals that starting overpriced and then reducing it results in a seller walking away with less money. The median sales price to last list price ratio is very revealing. This refers to the final list price before becoming a pending sale. There are always exceptions, but the overall trend is overwhelming. In Los Angeles County, 77% of all closed sales in March did not reduce the asking price. The median sales price to last list price ratio for these homes was 100%, meaning, on average, a home priced appropriately sold at its initial asking price. A house listed at $1 million sold for $1 million. The median days on the market before becoming a pending sale was only 16, demonstrating that accurate pricing also means considerably less time on the market.
10% of all closed sales reduced their asking prices between 1% and 4%. The sales-to-last list price ratio for these homes was 98.9%; on average, it took 75 days to become a pending sale, or over 2 months. A house that reduced its list price to $1 million sold for $989,000, a substantial $11,000 less than the house that sold for $1 million with no reduction.
For homes that reduced their asking prices by 5% or more, 13% of closed sales in March, the sales-to-last list price ratio was 97.6% after being on the market for 110 days, nearly 4 months. A home that finally reduced its price to $1 million sold for $976,000, an astonishing $24,000 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 their asking price by 1% to 4%, the sales price-to-original list price ratio was 95.8%. For example, a house initially listed at $1,032,000 had to reduce the asking price to $1 million to secure success and ultimately sold for $989,000, an astonishing $43,000 less than the original price.
Homes that reduced their asking price by at least 5% had a sales-to-original-list-price ratio of 89.2%. A house initially listed at $1,095,000 had to lower the asking price, often more than once, to $1 million to find success, and ultimately sold for $976,000. That is an overwhelming $118,000 less than the original asking price.
Homes that linger on the market generate less interest or activity and become “market worn.” The scatter chart below shows what happens to homes as they linger on the market. An enlightening 54% of all homes that sold within the first three weeks closed above their asking price. It dropped to 14% for homes that had been on the market for over 2 months. Homeowners who painstakingly arrived at the asking price had a substantially higher probability of selling quickly, very close to their price, and often at or above it. Sellers who were exposed to the market for a long time ultimately had to adjust the price and, for the most part, 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.
Precision pricing is the most important factor in securing the most successful outcome for sellers. Sellers who scrutinize every recent comparable closed and pending sale, carefully weighing the pros and cons, and contrasting a home’s condition, upgrades, location, and amenities, will ultimately arrive at the Fair Market Value, the most probable price the market is willing to pay for a home. This tactical approach to today’s housing market will enable sellers to walk away with the most amount of money possible, the ultimate goal in selling.
