The single most important factor when selling a home is the list price. Before Nancy, my business partner, and I even talk about all the ways we can drive traffic to our listings, we talk about market value and where a home should be priced in relation to its competition. Why do we do that?
Because overpriced homes lose their appeal after 30 days and sellers spend the remaining market time either adjusting the price to buyer?s expected level or not selling at all.
Let me explain:
The greatest amount of pent-up demand for a seller?s home is when it initially enters the marketplace. Let?s say for example Joe Martin wants to sell his 3-bedroom/2-bath condominium in Bucktown. Hundreds of buyers are looking for this product, and many agents are waiting for a new 3-bed/2-bath unit to come available. When Joe?s listing hits the market as ?NEW,? hundreds of agents and buyers see it, but ONLY if it fits within the expectation of perceived value in this 2010 marketplace ?around $425,000 for a simplex. If Joe lists his condo for $500,000, 15% above expected price level, he misses maximum exposure which results in very few showings and no offers.
If You are the Buyer
So now, pretend you are a buyer. If you are looking for a 3-bed/2-bath condo in Bucktown and a new listing comes on the market that fits your needs, you quickly contact your agent to get you into see this home. If your schedule does not accommodate an immediate showing, you may ask your agent to schedule a showing for the following week, or you attend the open house. More than likely, if you are a serious buyer, you have made arrangements to get into this home within the first three weeks of it being listed. If you haven?t made those arrangements, or if you saw the listing and didn?t make an offer, it?s because you think you can find a better price elsewhere based on the condos features. And, you are not alone, the hundreds of agents and buyers who have passed-up this listing as well think the same exact thing.
But our seller, Joe, is certain that all it takes is that one special buyer to enter the market place who truly understands that this condo is exceptional and commands a price 15% above the market?s expectations.
In this Market the Opinion that Matters is the Buyer’s
Unfortunately in 2010, market value is not dictated by seller?s perception: the person whose opinion matters is the buyer who makes an offer. My greatest education on the buyer mindset happens when I sit an open house where the consumers who walk through love to talk to me about market value (which I enjoy doing too). Let me share with you what I have learned:
1. Buyers, along with their agents, have extensively researched their niche market because they have been looking at similar properties for weeks if not months
2. They are calculating adjustments for the differences between homes (this point in particular is critical for sellers to understand)
3. They are monitoring price adjustments, through their MLS page, as well as homes that go under contract and closed sale prices
4. And based on points 1-3, they are creating an opinion on value
An industry rule of thumb is if 30-days have passed with a steady stream of showings, but no offers, the price needs to be adjusted down 5%. If 30-days have passed without any showings, an adjustment of 10% off list applies. Chicago residential real estate data concerning market time vs. price adjustments appears to support that claim.
There are no new laws created around supply and demand in the 2010 real estate market compared to any other year, decade or century. Years of data have proven that after 30 days, demand and interest wane. But data has also proven that pricing a home below market value will generate multiple offers which will then drive up the price to market value. So market value always wins. Accepting market value is the hard part.