The housing market has been plagued by a limited inventory for years now. Buyers eagerly await a fresh supply of available homes that best match their wish list. They regularly check their home search apps for anything that hits the market. Home buyers scour every photograph, every feature, and every detail of each home within moments it is listed FOR-SALE. It is during the first week of coming on the market that a home obtains the most attention. Buyers scrutinize the pictures, looking at condition, upgrades, amenities, style, curb appeal, and location. But, even more importantly, before climbing in a car to tour a home, potential purchasers will carefully analyze the asking price.
Correctly pricing a home initially, especially in a market slowing from week to week, is critical to secure a successful outcome and to walk away with as much money as possible. Armed with the knowledge of what they can afford, seasoned buyers have seen many different homes. Some look like a model, and others have plenty of deferred maintenance. They have seen homes that have been upgraded and updated and have alluring amenities. More importantly, they are very familiar with proper pricing for their specific needs. When a home first comes on the market, buyers immediately look at the price in relation to what the house has to offer. They can easily discern when a seller is being a bit overzealous and is stretching the asking price.
Price is ultimately the most critical first impression of a home. Sellers only get one shot at this first impression. After the initial ten days of coming on the market, most seasoned buyers have seen the home. Some decide to tour the house, yet others, after considering all the details, decide that their “phone tour” is enough and they are not interested in pursuing it any further. The longer a home is on the market, the less fanfare and excitement the property receives. Even if a seller reduces the asking price down the road, it is not met with eager buyer anticipation and enthusiasm. Currently, 28% of today’s active listing inventory has reduced the asking price at least once. The data illustrates that lowering the asking price or stubbornly waiting to get a price is not the best strategy.
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, 83% of all closed sales in May did not reduce the asking price. The sales price to last list price ratio for these homes was 101.2%, meaning, on average, a home sold a bit higher than the asking price. A house listed at $1 million sold for $1,012,000, $12,000 above the asking price. The median days on the market before becoming a pending sale was only 13, indicating that accurate pricing means considerably less time on the market in addition to selling, on average, for more than the asking price.
8% 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 nearly two months to become a pending sale. A house that reduced its list price to $1 million sold for $974,000, a substantial $38,000 less than homeowners with no reduction.
For homes that reduced their asking prices by 5% or more, 9% of closed sales in May, the sales-to-last list price ratio was 92.3% after being on the market for 75 days. A home that finally reduced its price to $1 million sold for $923,000. That is a mind-blowing $89,000 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 true 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 94.7%. For example, a house initially listed at $1,029,000 had to reduce the asking price to $1 million to secure success and ultimately sold for $974,000, an astonishing $55,000 less the original price.
Homes that reduced the asking price by at least 5% had a sales-to-original list price ratio of 81.8%. A house initially listed at $1,128,000 had to lower the asking price, often more than once, to $1 million to find success, and ultimately sold for $923,000. That is an overwhelming $205,000 less than the original asking price.
Another surprising statistic is time on the market regardless of
whether a seller reduces the asking price. On average, the longer a home is
exposed to the market and not a pending sale, the less money a seller walks
away with. In Los Angeles County, 36% of all closed sales in May were on the
market for ten days or less. The sales-to-last price ratio for these sellers
was 103.1%, meaning a home listed at $1 million ultimately sold for $1,031,000,
an incredible $31,000 above the asking price. For sellers exposed to the market
between 11 and 30 days, 31% of sales, the sales-to-last price ratio was 102.8%
- a home listed at $1 million sold for $1,028,000 or $28,000 above the asking
price. For sellers with market times between 31 and 60 days, 18% of sales, the
sales-to-last price ratio was 98.0%. That $1 million listing now sells for
$980,000 or $20,000 less than the asking price. Finally, for sellers on the
market for 61 days or more, 15% of May closed sales, the ratio was 92.4%. The
$1 million listed price sold for $924,000, a sizable $76,000 below the asking
price.
The most critical step for sellers to secure as much money as possible upon closing is to spend considerable time arriving at a home’s Fair Market Value based on a home's condition, location, amenities, and location. With mortgage rates stubbornly above 7%, the pressure to initially price a home accurately is the difference between selling quickly and maximizing the net proceeds check after closing versus staying on the market, reducing the asking price, and eventually walking away with less money.
