The Power of Pricing Drives Interest, Activity and Sales

Price Drives Sales. I think most would agree. In a down housing market or an adjusting real estate market, it is important to understand local real estate market dynamics, market trends and how pricing affects interest and activity.

The National Association of Realtors has collected data on real estate sales for decades, through up, down and stagnant markets. The data collected on the power of pricing reflects 3 key points:

• Number of showings is greatest if priced at or below market value
• Generates the most interest when it first hits market
• Starting high and dropping price later misses excitement & fails to generate strong activity

The image above reflects the general sales activity for tens of millions of homes in the U.S. over many, many years. We see that the first 3 weeks of listing a home are where the activity levels builds to it’s highest point. From the third to fifth week, while activity starts declining, the overall interest is still high. From week six on, interest and activity fade.

As I mentioned yesterday in the article on chasing the real estate market down, many sellers want to price their homes high to try and maximize their net gain on the sale of the home. When home sellers want to price their home higher than our recommendation, which is based on local real estate market trends and our years of experience, we get them to agree to reevaluate after two weeks on the pricing.

The graph shows why. If we adjust the price before the three-week apex of interest and activity, we can still catch the wave. Lowering the price at seven, ten or 12 means trying to rekindle interest.

More than 75% of home sales result from the local Realtors network and the MLS. When real estate agents have looked at a home several times and shown it to clients, the home can become jaded in their minds. A slight price reduction does not overcome this inertia.

To rekindle interest in a meaningful way means a significant price reduction. It’s the nickel and diming on price reduction that costs the home seller money in the long run.

Here is a successful pricing strategy we have used in the last two years with savvy, cooperative sellers.

• Set the initial price
• Present the home at the local Realtors Marketing meeting and have it on brokers tour
• Elicit pricing feedback from the real estate community
• Monitor interest and activity for 10 days
• If no offers come in – reduce price before two week deadline
• Monitor interest and activity for 10 days
• If no offers come in – reduce price before 4 week deadline
• Monitor interest and activity for 10 days
• If no offers come in – reduce price before 6 week deadline

This strategy works well to help find the pricing “sweet spot” for a real estate market that is still trending down and has yet to settle. This is different than chasing the market down. When a client is chasing the market down, they are usually waiting two months or more between price adjustments and they are less aggressive in their price reductions.

Finding the pricing sweet spot is a very pro-active and dynamic strategy. It’s not a – well, let’s wait and see campaign. It is a definitive campaign to aggressively find the top dollar price a market will bear for a specific home.

This image, also based on years and years of sales of millions of homes, shows the percent of buyers that will look at a home based on how it is priced. Note that only 60% of buyers will look at a home that is priced at market value. If a home is priced 10% above market value, visitors drop to 30% of interested buyers. If the home is priced 10% below market value, 75% of interested buyers will visit.

Currently, there is a three to six month inventory of homes on the market for most local communities. Buyers have a lot to choose from. 

A bigger ad in the newspaper is probably not going to bring more buyers to a home on the market. Fewer and fewer buyers are using the newspaper to find homes for sale. A more elaborate 4–color brochure is probably not going to do much either.

What will get your home sold is to work with an agent that has experience, knows the market, will tell you the truth, and networks like crazy with the other professionals in the local real estate industry.

I truly believe that all of our team fits this bill – BUT – I gotta tell you – Ginny Mees is absolutely awesome. If you are thinking of selling your home – be sure to include Ginny on your short list of Realtors to interview. Email Ginny (925) 895–2694