When Should Sellers Consider Reducing Price?
A slow-selling home is a sign that you have a problem that shouldn’t be ignored. There can be many reasons that you are not receiving an offer. You need to find out what it is and take steps to solve the problem.
Nationally, the average time on market for homes today is about a month—much faster than normal due to the inventory shortage. Time on market is the number of days between the time a home is listed on the multiple listing services (MLS), and the time that owner signs a contract from a buyer. This number varies greatly from market to market. For example, this summer, homes in Seattle were selling in less than ten days while in Chicago there were selling in 46 days. Time on the market also varies by price; more expensive homes generally take longer to see. As a rule of thumb, if your home has gone 90 days without a contract.
Research the Problem
Ask your real estate agent for an analysis of the problem. Have you held enough open houses and has the marketing been executed well? What are buyers saying after they tour the house? Why aren’t you getting more traffic?
Ask your real estate agent for comparative market analysis, which looks at recent sales of comparable homes. If you had one done when you listed your home, ask to have it updated. How long is it taking comparable homes to sell? Were they priced above or below the market? How many reduced the price?
No one wants to reduce their list price, but there really is no alternative if the price is the issue. Every buyer who reads your listing sees that it has been listed for months. They assume there’s something seriously wrong with the house. You could de-list it now and wait several months to relist it at the same price next season. If your home still doesn’t, you haven’t fixed the problem. Expect the same result. Reducing your price might be the fix you need.
Biting the Bullet
Every home will sell at the right price If you decide to reduce the price, don’t do it more than once. Getting the price right on a price reduction is critical. Nothing is more damaging to a seller than a history of two or more price reductions. To some buyers, your home will look like a fire sale. Even an interested buyer might hold off making an offer, expecting that you might go lower. Or a bargain hunter will make a very low offer knowing that you are very motivated to sell.
Do your homework. Ask your agent to compare sold prices with active listings in your market to get a sense for how much below list homes are being sold. This is called the list-to-price ratio. List-to-price ratios of 96 or lower are rare unless the sample is very small. In these times of tight inventories and rising prices, some markets are reporting list-to-price ratios over 100 percent.
Next, look at local pending sales. These are homes that have received a contract but have not closed. Identify those that had price reductions. How long did they wait before reducing the price? How much did they lower the price? How long did they have to wait for a contract after lowering the price? Review as many of these as you can find.
Finalizing the Reduction
From your research, calculate the average price reduction of pending sales in your zip code over the previous three to six months. Get a rough idea of how much you will have to lower your price. Then compare your rough final price with current listings in your market. Find the average of those homes and reduce your rough price by the list-to-price ratio to get a price that will beat the competition.
As soon as you post your reduction, Homes.com and other listing sites will email notices to buyers who are looking in your market and buyers will be able to search for price-reduced homes. Your real estate agent should also be marketing the news through mailings and ads.
If you can wait a couple of months to sell, take your home off the MLS for one month or more, then relist it at your lower price. Your listing will look like a new listing, and you will avoid the stigma of a price reduction.
These days almost all markets are “sellers’ markets,” where demand is greater than supply. Homes were selling faster than they had since the housing boom a decade ago. However, all real estate is local, and conditions can vary greatly from one zip code to another. By systematically researching your situation, you will identify the reason — or reasons — your house is not selling, from location to an old roof. In a sellers’ market, you should be able to sell your house with an accurate price reduction for less than it would cost to fix any physical problems.