Overpriced Listings: Death by a Thousand Cuts

A little while ago, I wrote a post titled “When Is A Home Really For Sale?”  Continuing the train of thought in that prior post, I figure a follow up post might be in order to specifically talk about how to properly price a home for sale.

Many homeowners faced with selling right now have an idea that the market is challenging…but few sellers know JUST HOW difficult selling can be in this market.

Pricing Your Plymouth Michigan Home for Sale

The first and, arguably, the biggest factor in the successful sale of your home is determining the appropriate list price.  MSN’s Money Central recently published a great article on just this topic.  I highly recommend taking the time to read the whole article.  Here are a few of the ten points I’d like to highlight:

Tip No. 1: Don’t get penalized for starting too high. Identify your home’s true value, and set the price slightly under that. At worst, you’ll lose about $10,000, but you might make a quick sale. If you’re further under market than that, buyers are likely to bid the price back up…

Tip No. 2: Test your price against reality. Try this: Pretend you’re the buyer. Search online in your price range in neighborhoods with similar quality schools about the same distance from downtown or the nearest major work center. If your place doesn’t pop out as an obvious value next to other properties people can buy for the same money, your price is too high.

Tip No. 5: Embrace the zeros. Here’s another school of thought: If you want to draw the most attention to your Internet listing, you should select a big, round number, like $400,000, says DellaLoggia. This doubles your home’s exposure, putting it in searches for properties between $300,000 to $400,000 and also in searches for $400,000 to $500,000. The next-best option is a price ending in a $50,000 increment, such as $250,000. And then $25,000.

Tip No. 6: Think in increments of $25,000. Most listing sites force buyers to define their searches in increments of at least $25,000. In price brackets above $500,000, some sites offer searches only in $50,000 increments. If your home would be accurately priced at $419,000, you might as well offer it at $400,000 or $425,000 — the same shoppers will see it.

Tip No. 7: Know your price bracket. Buyers shop by price ranges (also called brackets). These aren’t hard-and-fast categories; they’re psychological break points that help buyers — and their agents — organize searches.

It’s important to select your price bracket thoughtfully. “We’ve analyzed this and found that moving from one price ‘brand’ to another — say, the difference between $324,500 and $325,500 — can reduce traffic to the listing by as much as 7.1%, which is significant,” says Kelman, of Redfin.

Sellers Price Logically and Buyer’s Purchase on Emotion… Or is it The Other Way Around?

None of us like to feel as though we got a bad deal, left money on the table or got taken advantage of by the other party. This applies, almost doubly so, in making the decision to sell your home. When it is time to put your home on the active market, you must make a decision on what is most important to you: time or money.  If you need to sell within a certain amount of time, you need to utilize a very sharp pencil on figuring your list price. If optimizing your financial net is your biggest issue, you need to ensure maximum exposure of the amenities your home offers. At the end of the discussion about what’s most important in selling your home, it all comes back to the list price. The right listing price for your home will garner the maximum number of potential buyer’s eyeballs. This applies to the seller needing to move within a timeframe, and the seller with an eye on maximizing every dollar out of their home.

The buyers in today’s market are looking for real estate deals. This means they are looking for a great price on a great quality home. If your home is simply not up to muster, either in price or quality, there are more than enough other homes to consider. For you, the seller, this means that you need to approach the real estate market like a buyer. You need to crawl into their collective “head” and see your home through their eyes.

Seeing the market through the buyer’s eyes means turning yourself into a buyer for your home. If you were to enter the market to purchase a home just like yours, for what would you be looking? Every buyer I am currently working with is looking for the same basic things: quality home at a great price. Yeah, price points and needs are different, to be sure, but those two ingredients (quality and price) ALWAYS remain the same.

As the five points above indicate, there are many facets to consider when setting your list price. The overriding, most important thing for home sellers to keep in mind is the buyer’s viewpoint of your home. It’s all well and good to price your home “on the $25’s” to capture multiple price brackets (Tip No. 6), but if you’ve overpriced your 1,600 square foot home, the similarly priced, same quality 2,000 square foot home is going to sell before yours because it has more to offer than your home.

In a Declining Market…

As much as we don’t like to hear it, for the most part, the housing market is still declining. There are some micro-markets where prices appear to have stabilized, but chances are good that house values are below what most sellers expect.

We’d like to try [house’s market value + 25%] because we don’t want to give the home away. But we can reduce the price later, right?

This is a common statement when sellers are trying to come to grips with the lost value in their home. Remember that nearly every home search site on the net shows the pricing history for your home. For that matter, every agent, and every buyer working with an agent, can see the early pricing strategy for your home.

From the MSN article:

An error on the high side, however, can cost you more than just time. Once you drop your price, buyers smell blood. “They say, ‘He’s knocked $30k off the price; he’ll do it again.’ It’s death by a thousand cuts,” Kelman says.

Multiple Offers Anyone?

The converse, pricing below the market, could have an awesome benefit in the sale of your home. Aside from being one of the next homes to sell, you could gather multiple offers on your home if your offer (list price and quality) is ‘irresistible’ to home purchasers. In markets in and around Plymouth, Michigan, buyers are not seeing an overwhelming abundance of quality homes from which to choose. This means that when a below-market value home with quality hits the market, it doesn’t last long. In fact, many buyers who have been looking for a while will try to out bid each other for homes with this price and quality combination.

What’s The Correct Price For My Home?

In addition to advising you on the pricing for your home, we can also show you how our marketing effort exposes your home to the “four corners” of the internet. Click on the Google Voice button to the right to be connected immediately or drop your contact information on this form and a Professional One Real Estate agent will be in touch with you.

5 Responses to Overpriced Listings: Death by a Thousand Cuts

  1. Todd – “Death by a thousand cuts” is such a great way to explain it. I’ve said the same thing in different words to clients, both buyers and sellers. If we start reducing once a month by $X, a good agent or savvy buyer will see the pattern (and I see it all the time) and wait out the seller – knowing full well the price cuts will continue if it doesn’t sell. Since a lot of buyers are in no hurry and inventory is plentiful, they aren’t upset if they don’t get that house, knowing there are more to choose from.

    • Matt,

      Thanks for dropping by!

      “Savvy buyer” – See, that’s a great description of the majority of active buyers in our market right now. They get that home values are depressed to falling, in many areas of our market place. In fact, many buyers that have been keeping track of a few homes they like, will tell me about the recent price drops before I have the opportunity to discuss the home’s listing history!

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