A common question sellers ask is at what point should they lower their price once their home is listed for sale. Of course, most sellers prefer not to have the “lower the price” discussion because that means less profits in their pocket… or does it?
In my experience, and as studies have shown in the real estate industry, the longer a home sits on the market and doesn’t sell, the less money the seller eventually receives. The longer a seller waits to lower their asking price, the less they will actually put in their pocket. So, price it where the market “says it should be” as quickly as possible to MAXIMIZE YOUR PROFITS!
Some sellers wonder if the home was priced too high to start with; they wonder if they and their agent priced it wrong when it was first listed. Since there is not an “absolute” starting asking price, as long as the price was set based on what the market looked like at the time, then it wasn’t necessarily priced incorrectly; it’s just that the market is not responding to the current price and an adjustment is probably called for. It’s basic “supply and demand” and that can change on a daily basis – especially in today’s challenging marketplace.
So, how does a seller know if their home is priced too high for the current market and at what point should the price be lowered? Well, it depends on the property, the situation, and the market. However, there is a common rule of thumb that seems to work well in the marketplace and it’s this: If a home has been on the market for two to three weeks, OR has had ten buyer showings, whichever comes first, then it’s time to lower the price. Of course, I strongly recommend the seller consult with their Realtor to see what’s appropriate in their situation, but this rule of thumb seems to apply more often than not.
As I stated above, the longer a home sits on the market, the less it will usually sell for. Why is this? Well, think about it… If you’re a buyer and you see a home that’s been on the market for two, three, four months or longer, what would you think? You might think something is wrong with the property; you might think it is way overpriced. You would wonder why it hasn’t sold. And, legitimate reason or not, if you wanted the house, you’d probably offer much less than the asking price just because it’s been on the market so long and the sellers must be motivated. Of course, the seller is frustrated at the ridiculously low offer, so they decline it and the home sits even longer for the next “low-ball” buyer to come in. The home eventually sells for much less than it should have, if it even sells at all.
The next question is, if a seller is going to lower their price, then by how much should it be lowered. Well, there’s no really good rule of thumb here, however, many agents say a price reduction should be a minimum of 3% of the current price (if it’s significantly overpriced, then a much larger reduction may be in order). Again, this can vary depending on the property, the current price, the current competition, and the marketplace. It’s critical here to seek the advice of your Realtor. The key here is to “listen to the market” and what it’s telling you. Your Realtor can interpret the market and make a recommendation on how much to reduce the price.
Price reductions that are too large can result in a seller “leaving money on the table,” while price reductions that are too low, that “chase the market,” are almost as bad, if not worse than no price reduction at all. The biggest mistake a seller can make is to reduce their asking price by an insufficient amount and chase the market. In every case, the seller will lose money. Again, the advice of the Realtor is vitally important.
By the way, if a price reduction doesn’t get the home sold (again follow the rule of thumb above), then additional price reductions may be necessary. Remember… if a seller tries to “argue” with the market, the market will win every time.
The bottom line: if your home hasn’t sold within the appropriate time frame (rule of thumb), then talk to your Realtor about a possible price reduction. The longer you wait, the more money you may be losing. Get it to the right price ASAP and MAXIMIZE your profits. How do you know when you’ve hit the “right price?” That’s simple: when a buyer buys it!
