Pricing your home correctly up front has long been the difference between selling your home quickly for top dollar rather than dropping your price continually while your home sits on the market longer and longer. Correct pricing is the single most important factor in selling your home, there is no amount of home staging that will make up for an over or even under priced listing.
Pricing your listing too high:
The idea of pricing your home too high comes from two different schools of thought. The first and most common reason for this is the "I'll just price my home high to start so that I have room to come down if someone makes an offer". The major problem with that statement is that the offer will not come because the home will not be viewed. A recent study has found that buyers will most commonly search for homes in $25,000 increments, so buyer A will be searching for homes from $150,000 to $175,000 while buyer B will be searching for homes from $175,000 - $200,000. If your home is worth $190,000 and you price it at $205,000 in order to give yourself some room for negotiation, you have just priced yourself out of buyer A and buyer B's search criteria. Also if a buyer does go up in price to see what is available this buyer has seen everything from $150,000 - $200,000 and simply thinks you are way over priced. A buyer will not usually make the connection that you have priced your home at $205,000 so that he will offer $190,000. The buyer will have no interest in going to see your home. An over priced listing will sit on the market longer and the buyer and the agent can clearly see the "DOM" or "days on market" field. The longer the home sits on the market the longer it will sit on the market. Once your price does not bring anyone to see your home for long enough you will lower the price. The home will sit on the market longer. You will lower your price again and this vicious cycle will repeat itself. A home that sits on the market for a long time is usually viewed in the buyers eyes as a "defect" property. They will wonder what is wrong with the home. If you begin to lower your price every two weeks to get it in line with your competition, a savvy buyer will wait and see how low you will go. The second school of thought is personal justification or emotional attachment to the home. The "My home is worth more than the Jones' because (insert any of the reasons why you purchased your home here)". Keep in mind that the reason you picked your home over the other homes in the neighborhood may be the very same reason someone else will pick a different home over yours. Did you pay $20,000 more for your home than your neighbors home because of this reason? If not it would be hard to expect the next buyer to come along to do the same.
Pricing a listing too low:
The only reason that I am aware of for pricing a perfectly good home too low is a need to get out. Usually a financial issue. While it makes sense to buy a home for a great deal pricing your home too low brings up one question time and time again in a buyers mind, "What is wrong with the home". Every buyer is looking for a great deal but there have been numerous occasions where I have taken a buyer to a home that was priced extremely low for the value and they have asked "What is wrong with this home?". Even if the agent does his homework and digs deep and finds the reason to be something as simple as a job related relocation where time is a factor, the idea that something is wrong with the home has already entered the mind of the buyer. If you have an urgent need to get out of your home fast, pricing your home correctly within your comparable sales and competion will actually help your home to sell faster than pricing it way below market value.
Why is it more important to price your home correctly now?
In the section about pricing your home too high, I briefly spoke about the "Days On Market" field that will show up on a listing. This field will allow a buyer to know how long the property has been listed for.
In the figure above you can see this home had been listed for 3 days at the time this listing was pulled. A high number in the DOM field can cause the home to be devalued or even not come up on a search if the buyer is searching for homes that have come available in the last 30 days. When I am showing homes to potential buyers the number one question I am asked is "How long has this home been on the market". This is also a basis for what a buyer will offer, the longer your home has been on the market the lower the offer a buyer will make.
This kind of thinking was often offset by agents taking listings and then pulling them off the market after 30 days and then putting them back on to reset the days on market field. The problem with this, other than it's obviously intended to deceive, is that those of us who track market statistics were not getting accurate information as to the average time a home in a given area
would sit on the market before it was sold. The Wasatch Front Regional Multiple Listing Service, in an attempt to give more accurate market data, recently decided to adopt a system already in place in many other markets. The "DOM" field has now been replaced with "CDOM", or "cumulative days on market". If a listing is pulled off of the market for any reason when it is put back on the market the clock will leave off where it was. It is no longer possible to reset the days on market field. If you price your home to high with the thought that you can reprice it and start fresh, you will be disappointed in the results. There is no second chance on pricing anymore.What if I list it with a different company?
"CDOM" does not discriminate from company to company. If you list your home with "Discount Dollar Realty" and you get the bare bones sign in your yard and listed on the MLS service hoping to save a few dollars, then later decide that based on your less than favorable results you would like to re-list your home with a full service heavy marketing firm, your days on market will not be reset.
The good the bad and the ugly:
The good news is that this will bring more accurate neighborhood statistics and give home owners a much needed realistic view of market conditions in their area. We will now be able to accurately track the average days our homes are taking to sell. Buyers will no longer be deceived by the days on market field.
The bad news is that it may take a little while for buyers to adapt to a realistic "days on market" time frame, but if Realtors® will simply take the time to educate their buyers to the new system I believe this should not have much impact at all.
The ugly. The ugly can be avoided by simply selecting a Realtor® who is willing to do more than just put a sign in your yard to sell your home and is willing to do the research necessary to price your home accurately from the beginning of the listing. Please do not be one of the many home owners that will make bad choices leading to a 270 CDOM. This will affect all of us.
Please feel free to contact me with any and all of your questions, concerns, or comments.
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