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

Home Sellers Continue to Bring Prices Down to Attract Buyers

BUT - Increases in interest rates are negating real savings.

I stopped at a home in San Ramon yesterday where a Realtor was taking her sign down off a 4 bedroom home that had been on the market for several months. I asked her what was up and she said the owner is going to rent it - we could have had it sold, but he wouldn't listen to me on pricing.

According to the real estate agent, she had suggested setting the price at $629K when she listed the San Ramon house. The seller wanted it listed at $689K. He wouldn't budge, so she agreed with the understanding if there was no action in two weeks, they would do a major price reduction. 

This is a fairly standard tactic when dealing with sellers who wish things were different - let the market demonstrate what the home is worth to a buyer. If the traffic is insignificant, then the price is out of touch with the reality of the market.

The San Ramon Realtor told me that the two weeks went by and the seller would only lower the price $10K. Thiat is not a major price reduction. Well, after several $10K price reductions, the house continued to sit there with no interest until the listing contract ran out and the seller decided to rent.

This is a story we hear more and more these days - sellers chasing the market down and losing money. I understand that sellers want to get top dollar for their house, but top dollar is based on what the market will bear, not what the seller wants to get. No amount of marketing is going to sell a $600K house for $700.

These sellers would not buy an overpriced home. What makes them think they can sell an overpriced home? The real estate agent told me that if the home had been priced right, she could have had it sold. I believe her because we closely monitor that neighborhood. Pricing it at $649K initially would have brought the traffic and an offer that could have been negotiated into a sale.

Getting back to the headlines of this article - buyers are a rough bunch these days - back and forth, back and forth. And all the while, interest rates fluctuate, lending guidelines change and qualifying for a loan is a crap shoot.

It's a great time to buy real estate in San Ramon, Danville and the East Bay. The people that are going to walk away with their dream homes at a great price are those that take decisive action while the window of opportunity is open.

Using the figures above - a 10% decrease in price can be negated by an interest rate hike. Sometimes savings money costs you more than money - like your dream home or the deal of the century.

Recently, I’ve written a couple of posts about the dilemma of pricing a home right to get it sold.

• How to Sell a Home in Tough Market
• The House Price Challenge

How do you price a home right according to existing market conditions? In the “good old days” of 2002 – 2004, it seemed you could price a California home for whatever price you wanted and somebody would show up to buy it or at least bid on it. The market was experiencing phenomenal appreciation as bidding wars pushed prices higher and higher while sellers danced in the streets and buyers walked around either punch drunk or frothed into a frenzy of desperation to lock in a purchase.

In an appreciating market, getting top dollar for your home can be as easy as simply pricing it above market value and letting the market catch up to the price. This can take some patience or no patience depending on how rapid the rate of market appreciation.

But when the market turns, holding onto the “fantasy profits” (appreciation in the mind, not in the bank) can set us on the road to sorrow and frustration, if not ruin. It is the “holding on” to unrealistic hopes, expectations, or fantasy profits that can lead to the slippery slope of chasing the market down.

A good agent who knows the market can help to position price to attract the most attention and set up the dynamics for a quick sell or maximum net depending on the client’s motivation. Sometimes it is not possible to have both. Sometimes a quick sell puts some limitation on net/net. Sometimes lowering the asking price sets the stage for multiple offers that result in bidding the price up.

Whatever the market conditions or circumstances – homes continue to sell. Engaging the services of an experienced Realtor that is neither in la-la-land or trapped in their own narcissitic needs remains a good investment for home sellers wanting to maximize the potential of a real estate transaction.