Recently I read a book written by Zillow.com guys Spencer Rascoff and Stan Humphries “Zillow Talk: The New Rules of Real Estate”. It was a very interesting read, because they were making a good attempt at interpreting tons and tons of real estate data that Zillow.com has been collecting for years. One of the chapters addressed pricing a home and perils of overpricing. It’s such an important subject – I wanted to share their insight and how it applies to Arlington.
“Pricing your house for sale is a lot like playing The Price Is Right. If you want to take home a prize – i.e., a quick sales for a great price – you should list your home for as close as possible, but not above, it market value. Just like on the game show, there is a real danger to overpricing”. Most sellers are more afraid of underpricing than overpricing. After all, no ones wants to sell his or her home for less that it’s worth. That’s why some sellers purposely overprice. They assume that by listing high, they’ll somehow drive up the sale price and net some extra cash. But in reality, this strategy rarely works. The very tactic that sellers hope to inflate the final sales price ends up lowering it instead.
I did some market analysis for townhomes market in Arlington and analyzed sales for 2014 and January, February of 2015 – a total of 333 sales. 21% of the listings had a price cut. On average – if a listing had a price cut it sold for 92% of it’s original list price (so if you were listed at $600,000 – your sales price would be $552,000). On average townhomes sold for 98% of their original sales price for the period I analyzed. Per Zillow guys “The data tells us that when a listing is overpriced, it tends to sell for less than it’s estimated market value. In fact, the more home is overpriced, and the larger the price cut it needs to sell, the bigger the impact on the final sales price.” A lot of sellers tell me – the buyer can always make an offer – but most buyers are too scared to insult the seller and will not be investing time and energy to go through the experience.
Overpricing a home don’t only cost you money; it also costs you time. For the market I analyzed it took 27 days on average to sell a townhome vs. 70 days for homes with a price cut – that’s twice as long. That may not seem like a big difference, but after the 1st month on the market a home becomes “stale” – with very few showings and a big questions from buyers “What’s wrong with it?” – not a great negotiating position for a seller.
So now what? You overpriced your house. Per Zillow guys:”If you overprice, it’s better to admit your mistake and cut the price all the way down to the true market value on one fell swoop. The alternative is death by a thousand cuts” – price cut after price cut – which only serves to drag out the ordeal and compound the problem”.
If you are a seller who wants to “test” the market – none of this matters to you, but if you’d like to move and sell your home at a great price – you should take these findings into consideration. One of the most important jobs for a Realtor is to help you figure out the market value of your home. No two homes are the same – so it’s never an exact science, but if you approach it from different angles – comparables sales in the neighborhood, assessed value/sold price of com parables homes, price per square foot, upgrades, inventory levels, etc – you can get a pretty good idea of what your price should be. Call me if you’d like a free estimate of the price of your home – I’m here to help!