John Murphy Reports

HOW TO FIND THE RIGHT PRICE?

One of the things that I have observed over the past 6 months or so with falling home prices is the seller who reduces the price of his home quickly, tends to get an offer within 2 weeks of the last price reduction.  If it’s priced right from the beginning, they get offers quickly as well.  Of course when sellers are reducing their price, no one really knows which one will end up being the final price reduction that triggers a buyer to write an offer. Many sellers as well as agents, tend to get hung up on a price and try to stick to their guns and wait for an offer.  This is a very damaging and defensive position to take. The market has so fundamentally changed that you’re at a big disadvantage if this is your position.

When a property is overpriced and out of range from getting an offer, any interested party can usually just sit back and wait for the seller to either get more realistic and start lowering their price, or they become desperate and pull the plug on the price.   Buyers know that the likelihood of someone else purchasing this property while the price is still high is very low.  For example, if a seller has his home listed at $375,000 but the real market value for the property is $325,000, the buyer will just wait until the seller lowers his price in to a range where the buyer feels they can strike a deal with the seller while not overpaying for the home.  The seller may drop his price to $359,900 and then perhaps $349,900.  If he goes to $339,900, then the buyer is likely to make an offer because at that price, there may well be someone else interested in the property and the buyer doesn’t want to lose out on it.

So, how fast should you reduce?  I tell my clients that they should be prepared to reduce within 18-21 days of the initial asking price and every 18-21 days thereafter until we receive an offer.  Some agents feel that 30 days is enough time.  I guess that’s okay, but not optimal.  60 days.  Forget it.  You’re really hurting yourself in this market. If the initial asking price is too high, you’ll know it by the feedback and lack of showing activity.  If the activity is high, but there are no offers, then the price has to be reduced.  No matter how nice your home is, in a buyers market, homes are seen as commodities because in all likelihood, there are 30-40 just like yours for sale.

Sellers have to offer the best price/value ratio in your specific market segment if your home is going to sell.Pricing homes today appears to be more art than science, but I wanted to set out to try to figure out if there is an optimal time when sellers should be reducing the price of their home.  Do more offers come in right away?  Does it take 30 days?  60 days to get an offer based upon the last price reduction?

I took a look at homes (single family, townhomes, twinhomes, and condos) that sold (i.e. closed) in Plymouth, MN between September 1, 2008 and November 14, 2008.   143 properties closed.  I then went through an manually noted the date of the last price reduction and then calculated the number of days between the last price reduction and when a home pended (went of the market – no more showings).  I then subtracted 5 days because on average I am estimating that it is taking 6 days from the time an offer comes in and gets negotiated and when a buyer completes their inspection and agrees to move forward with the transaction.  The findings of this study were most interesting and I have tried to put the results in graphical display below.

I broke the categories out in to 3 segments based upon when sellers received offers

1. Within 21 days since initial asking price or last price reduction
2. 22-43 days since initial asking price or last price reduction
3. 44+ or more days since the initial asking price or last price reduction

Nearly 38%, (54 properties) of all the sold transactions had an offer within 21 days of their last price reduction and on average they received it 8 days from the last price reduction.   The next group was 34% of the total (49 properties) that received an offer between days 22-43 with an average time of 30 days from the time of their last price reduction.  The last group represented 28% (40 properties) with an offer coming in more than 44 days past their last price reduction and this group had an average of 78 days.

Those who reduced more quickly also received selling prices higher than those who took longer to reduce.  The breakout is as follows:

• 21 Days or less: 96.91% of asking price
• 22-43 Days:  96.02% of asking price
• 44+ Days:  95.74% of asking price

The property segments generally had similar pricing demographics with the exception of the 44+ group had a couple of higher priced homes and this was a smaller segment with only 40 homes compared to the others with 49 and 54 respectively.

The market is a dynamic and with all the ongoing changes from the banks as well as the government, sellers and their agents need to aggressively monitor the situation and adjust pricing accordingly.  This is not a market to be cautious or hesitant when it comes to pricing.  If you want to sell, you have to proactively price your property in order to get an offer today.  If you’re worried about pricing it under the market, if it truly is priced under the market, you will have multiple offers.

Here’s an update on some of the thinking above so I’ll append this blog entry with some additional data that I think is particularly insightful for sellers.   I combined the first two segments (0-21 days and 22-43 days) to create one group.   What’s most important to note is the following:

• 72% of the market of pended homes received offers within 43 days of the last asking price.
• On average, these homes received offers within 19 days of their last asking price.

The main point is sellers should be reducing the price of their homes every 3 weeks in my opinion based upon the research above.