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How To Know When To Drop The Asking Price On Your Home
High demand and low supply have made it a seller's market pretty much all over the country, and especially for lower-priced homes.
That does not mean every house will sell or sell quickly. Price is still important, especially as some markets begin to overheat.
The low number of listings has made the market more competitive, pushing prices higher at a fast clip. Nationally, prices are up about 7 percent from a year ago, and in the hottest markets they are up double digits. Still, a house can be overpriced, and today's savvy house hunters can smell an overpriced house a mile away.
If a listing is overpriced and sits on the market for too long, it gets stale. Potential buyers will see the time on market and click past your listing, often without even looking at it. That is why it is best to lower your asking price before your listing hits the stale stage.
So when is that?
"I typically drop the price after the second week on the market," said Laura Barnett, a real estate agent with RE/MAX DFW Associates in the Dallas area. "But I may be more aggressive than most. Usually just in $5,000 to $10,000 reductions for the most part."
Barnett said she rarely had to drop prices in the last few years because the Dallas market was just that hot. Instead, the norm was multiple offers and sale prices above ask.
"But there is a strange change that is in the air, and sellers are starting to have to humble a bit. I would not say it is a buyer's market, but a new balance between buyers and sellers has been hitting us since August," Barnett said.
That may be because home prices have hit a tipping point in affordability. There is only so much buyers can handle after a multiyear run-up in prices. Of course, every market is different, and some markets may have overheated, while others are still competitive.
The average time on the market for all homes nationally was 34 days in September, according to the National Association of Realtors. That is down from 39 days in September 2016. But markets like Seattle and Denver are still seeing homes sell in just a few weeks.
It would be easy to say that all you need to do is price your house correctly and competitively in the first place, and then you won't have any problems, but there are several schools of thought on when to be competitive and when to test the market.
"I don't believe in 'testing the market,' but … if we enter the market that might be pushing the top of the range, we can easily gauge response within seven to 10 days," said Dana Rice, a real estate agent with Compass in the Washington, D.C., area.
"It's almost a certainty that if we don't get an offer within that first 10-day period, then we've missed the mark," she added.
If the home doesn't sell in two weeks, Rice said, she then considers a price cut.
"And we've had a lot of success doing a rapid price adjustment and bringing those same buyers back — the ones who liked the property in the first place who will view the price adjustment as 'the seller is listening to me,' and most buyers want to feel that the seller is listening to them," she said.
It can also be beneficial to reach out to people who may have toured the home first and let them know that there may be a price cut coming. The buyer may make an offer that is slightly above your intended cut.
What sellers should do
If you and/or your agent are considering a price cut, first research your neighborhood, right down to the ZIP code, to see how long it takes most homes to sell. Then look at homes that sold after a price cut.
"From your research, calculate the average price reduction of pending sales in your ZIP code over the previous three to six months. Get a rough idea of how much you will have to lower your price," advises Steve Cook, editor of Real Estate Economy Watch.
"Then compare your rough final price with current listings in your market. Find the average of those homes and reduce your rough price by the list-to-price ratio to get a price that will beat the competition," he said.
Once a price is reduced, all listing websites will be able to see that, and some will send an alert to buyers. Real estate agents will also market a price reduction, both on the front-yard sign and the online listing.
While a price drop can bring in more buyers, it can also turn off some buyers who might have been on the fence, fearing that the home is not as desirable as they thought.
Cook recommends that if you don't need to sell quickly, you might consider taking the home off the market for a few months and then relisting at a lower price.
"Your listing will look like a new listing, and you will avoid the stigma of the price reduction," said Cook.
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