Strategies for the New Year
Strategies for the New Year
In just the past week, according to our area wide multi-agency data base, over 50 homes went into contract and 20 new listings were introduced.
I can’t say with certainty that prices are at an all-time high, but I can say that in my 30+ years of working in this business that there has never been such a rapid decline in inventory. A year ago, the market was just beginning to pick up from a many-year-long slump and we were long on supply. In the time since, we have steadily lost inventory at an unprecedented rate.
Without historical data, it’s hard to know how to price properties when there is a sudden increase in demand and insufficient inventory, like we’re seeing right now. When a market moves at an ordinary pace, listings come on because sellers are ready to sell.
I’ve written before about what motivates people to sell and purchase (it’s usually a life event). But when there is a sudden demand and an accompanying price increase, many homeowners want in. They either move up plans to sell, or just decide to cash out because it seems too good an opportunity to miss.
Pricing property works the same, no matter why you’re selling
For those who planned to sell already, those whose life events caused them to sell at “just the right time,” and those who just want to cash out, there is a natural inclination to be a bit too aspirational when putting a home on the market.
There are only three options for how to price:
You can list high, expecting to entertain offers below that price
You can list at the price you hope to sell
You can list lower to create urgency and demand
The best strategy depends on what kind of market it is. If you have a property in the sweet spot — the price range most buyers are looking for at the time — you’re best off going lower. If there is a lot of activity, why not make your product the most attractive? If you expose it to the market and attract lots of people, most likely the shoppers will bid it up. In no time, you can have a deal at market value with backup offers.
Why it’s usually smart to price low
Let me remind you that markets are efficient; your home is only worth what someone will pay for it, and when it’s correctly priced, it will sell. You will only have multiple interest when a home is priced at or below market value and demand for limited inventory drives up the price to the actual market value (again, that’s what someone is willing to pay for it).
If you price it too high, you may not even get lookers. Most likely, you’ll get crickets until you reduce the price or the market improves to meet the listed price.
If you price high, you’re putting yourself in the position of waiting for one person who’s willing to make a big offer, and then being very dependent on that buyer. Remember that an offer isn’t a done deal; the process from offer to contract takes a few weeks, and the more time it takes to come to a resolution, the more chance there is that it will fall through. Buyers and their attorneys act quickly when there is competition — not so when they are the only one.
There’s a second advantage to starting with a low listing price: Your listing will get more eyes when buyers are searching online. Most home shoppers start their search on a real estate website, and they often sort by price. The default price ranges (although you can create a custom search) generally run something like “$1 million to $1.99 million,” then “$2 million to $2.99 million,” then “$3 million to $3.99 million” and so on. For example, Pricing your home at $3.9 million instead of $4.1 million isn’t just a way to make the number look smaller — it actually increases the number of people who will see it, because it targets a lower price range.
As I said above, your home will ultimately sell for market value, so you aren’t putting yourself at a disadvantage. Quite the opposite: By exposing your listing to the broader market, you increase your chances of sparking the coveted bidding war.
Some advice for buyers who want to be competitive right now
In this market, you can’t expect to make a deal subject to financing.
Chances are, there will be other buyers willing to offer cash or will use a mortgage but not request that the deal to be subject to it — that is, they won’t ask the seller to assume the risk. It’s not enough to have a pre-approval from your lender. Be sure you can get the loan and be willing to fully commit to the deal when you present an offer. Make sure you’re all queued up to have the home inspected and to make sure any changes made by the seller were done with the appropriate permits.
If you want a house now, you’ll have to act quickly. Be prepared to agree to the asking price or more.