How Will Homebuyers React To The Asking Price Of Your Home?

There are three critical pieces to getting your home sold successfully.  I call them the 3P’s.  The 3P’s are Preparation, Pricing and Presentation.   The most critical component of the 3P’s is pricing.  I will focus on your home’s list or asking price and how buyers will react and respond to your home’s asking price in relation to fair market value.  95%+ of all homes will sell for fair market value.

Your home’s asking price does not affect your home’s fair market value!  Your home will sell for what it will sell for based on location, square footage, function and appeal based on what a handful of homebuyers in the marketplace are willing to pay for similar homes.  Smart home buyers will submit offers based on fair market value and not the list price of a home.

A home asking price does not:

 

• • Determine what the home buying public will pay for your home.

• • Net you more money because the list price is higher.  Check out my article, Price to Sell or Pay the Price Later, to see how an overinflated list price can actually net you less money.

A homes asking price can:

 

• • Expose your house to the largest number of home buyers and the right home buyers for your home.

• • Excite and motivate home buyer’s

Your Homes Asking Price and How Home Buyers Will React and Respond Let’s look at what we see in the real estate marketplace for asking prices of a home and how home buyers respond and react to a home’s list price.  Remember your best buyers have been in the marketplace and have been in numerous homes.  They know what to expect in a certain price range and with the information available on the internet they are educated and savvy home buyers.

Consider The Local Market

Before thinking about the proper list price for your home, consider the market you are in.  When I originally wrote this article it was back in 2012.  It was definitely a buyer’s market.  In a buyer’s market to a neutral market, it is absolutely critical to get the price right, or your home will sit on the market unsold.

But in 2021 we are in an unprecedented sizzling hot seller’s market.  Market times are 15-25 days and the asking to sold price is running around 102-104% of the asking price or more in some market segments.

In a hot seller’s market, there are two things to know.  One overpricing slightly and I don’t mean by 10% more in the 3-5% category is not going to impact your sale too much.  The other thing to know is it is impossible to underprice your home.  We are seeing home priced in the 400K range sometimes go $110k or $125k over asking. 

It is impossible to under price a home in a strong buyer’s market.  The buyers will correct and pay for the home. But, don’t be overly confident buyers are suspicious of homes that sit around unsold. I get phone calls from buyers asking why a house has been on the market for more than 2 weeks now…. what’s wrong with it? why hasn’t it sold?

Make sure you consider the current conditions of the market you are in, before looking at setting a list price for a home.

Homes asking price 10% or more over fair market value.  (Severely overpriced)

In most cases, if your home is severely overpriced, it will be obvious to most home buyers that your house will not compete with other real estate offerings in the marketplace.   The buyers you attract in this price range will be new to the market, probably not yet qualified and not sure of what is even out there.   Showings will most likely be limited to one or two a month if any.

The problem with moderately or severely overpricing your home, in a neutral to buyer’s market, is you are not exposing your home to the right buyers.   Let’s take a look at a home that should sell in the $275,000 to $300,000 price range with a fair market value of 280k to 295k and is listed for $330,000.  Most of the true buyer’s for this home will concentrate their search in the $250,000 to $300,000 price range….  probably never looking at homes that are priced over $300,000.  Your home is competing with many homes that will be priced properly in the $300,000 to $350,000 price range.  It just will not stand out in the competition and could even look pathetic.

Most home buyer’s that may be true buyer’s for your home may not know it exists and cannot even get excited about it because they have stopped their home search at $300,000

Homes asking price 5%-10% over fair market value.  (moderately to severely overpriced)

If your home’s list price is moderate to severely overpriced you will see a few more showings but your home will still have problems competing in the marketplace.

Home buyer’s may look at your home but they will feel there is no hurry to react.  Many home buyers are reluctant to put in an offer feeling they cannot come to terms on your home with you.   Here is a hint…  Most homebuyer’s become emotionally involved in a home to want to put an offer on a home.  They also will wait until you have a price reduction or multiple price reductions before they put in an offer.  Meanwhile, they will lose interest in your home or purchase another.   There is no immediate need in their minds to put in an offer.  They do not feel they are missing out on an opportunity and want to see if they can find something better.  The buyers you attract will be the buyers that are really not ready to buy yet and probably not even sure what they are looking for.  They are just starting to feel their way in the market, unsure and not confident enough to make a decision about a home yet.

Current market statistics show that about 40% of the homes listed, expire unsold, to be taken off the market or relisted.  While there are multiple reasons a home expires unsold the number one reason homes expire is the home is overpriced.   The longer a home sits on the market, the more stagnant it becomes, I call it Market Rot.

Homes asking price 2%-5% over fair market value.  (slightly to moderately overpriced)

Statistics in Essex County and Middlesex County Massachusetts show that homes that have sold in the past 6 months in the median price range have sold with-in 3% of the list price.  What does this data tell us?  To have a successful home sell in average market times, 132 days, you as the home seller need to list your property within 3% of fair market value.   If you are over the 3% mark you will most likely have to incur 2 price changes or your home will expire.  Statistics show that over 80% of the homes in the real estate market had 1.65 price changes totaling 6% price reductions overall before selling or expiring.  A whopping 38% of those homes also expired, unsold!! (that’s not counting the cancelled listing, the sellers that just gave up!)

If you fall in this category you can expect about 1-2 showings a week and market times of about 4 months. (market data varies per town but this is an overall assumption for North Eastern MA)  Your home should be priced close enough to fair market value to attract the right home buyers to view your home.   When you are priced in this category, buyers feel that putting an offer on your home can produce positive results.  Homebuyers, may continue to see if anything better is out there but they will seriously start to consider your home.  They will allow themselves to become emotionally involved in your home!  You are most likely attracting a good percentage of the right buyers to your home, but you still are missing out on some and are probably missing the buyers that are willing to stretch a little to buy the right home.

The danger of listing your home in this category.  While slightly to very moderately pricing your home in this category will most likely produce results, there is a danger.  The danger is that determining fair market value is more an art than a science.  Fair market value is typically a range not an exact number.  I usually tell sellers fair market value is about a 5% range.  Sometimes we can tighten that up quite a bit, sometimes it’s looser than that.  Say the fair market value range of your home is $475,000 to $500,000 you purposely overprice by 5% at $525,000.  Ultimately the buying public is only willing to pay $475,000 to $480,000 for your home.  Now you are priced 10% over market!!

The other danger of overpricing your home slightly, is while the market is stabilizing we are still experiencing price depreciation.   Tewksbury for the past prior 6 months compared to the same period a year ago has lost 5% in its median home price a home overpriced 3% today will be overpriced 5.5% 6 months from now and 8% a year from now.

Homes asking price less than 3% or right at fair market value.  (moderately under priced to right at market)

When a home comes on the market or slightly below market, regardless of condition, location or otherwise…  you will get tons of showing immediately.  Your house stands out and shines among the competition (most sellers tend to slightly to seriously overprice)

Buyers get excited and know they will have to compete hard for your home.  There’s a buzz about your home.  They are not willing to miss a good opportunity.  In many cases your home will go under agreement in several days to a month.  You will most likely receive multiple offers and in many cases you will receive offers above your list price!!  Not only are you getting the right buyers to look at your home you are also attracting buyers that may be willing to stretch a little for the right home.  You have substantially increased your pool of buyers for your home.

Let me clue you in on a little secret…

It is almost impossible to under price your home, if you do the market will correct itself, you will get multiple offers over asking.

 

1. 1. A home that is priced right should go under agreement in 12 to 20 showings.  If you have had well over 20 showings it is time to sit down and review market data and feedback.  It is probably time for a price change.

1. 1. You should incur those 12-20 showings in the first 30-45 days on the market.  If you are not receiving 1-2 showings a week and you have gone several weeks without any showings it may be time for a price change.

1. 1. Stay on top of the market.  Real estate markets are always changing…. Going up or down.  Don’t chase the market down.  When most people decide on a list price they are hesitant to make big price reductions.  Meanwhile they are just chasing the market down.

1. 1. When and if you decide to do a price change, do it in a minimum of 3% increments.  Personally if a home has had a ton of showings and plenty of market time, I suggest a minimum of 5% to  regenerate interest in your home.

1. 1. Selling your home is all about proper pricing.  There are no magic pills or techniques to sell your home.  Remove the emotion.  It is all about the historical data of similarly priced homes.

1. 1. One home does not make for a comp.  You want 3 homes or more of similar sold prices to determine proper pricing for your home.   Time and time again I will pull data for a client, there will be one home that sells for 20 or 30k greater than the others where the bulk of the sales will be less, yet the seller will focus on the one high one.

A home priced in this category has many benefits:

 

1. 1. Buyers compete for your home-  Competition makes for better offers and a negotiating edge.

1. 1. Multiple offers will be tendered.

1. 1. Your home may sell for over asking.

1. 1. You market time will be under 30 days.

1. 1. Your life will be less chaotic as showing will only have incurred for a short time.

1. 1. Buyers who feel they are getting a good deal (a good deal is what they perceive as a fair price) are much easier to deal with through the process.

1. 1. It allow you to focus on your next step rather than be in limbo about what to do.

Here are some hints to help you make decisions about your homes asking price once you are on the market.

 

1. 1. A home that is priced right should go under agreement in 12 to 20 showings.  If you have had well over 20 showings it is time to sit down and review market data and feedback.  It is probably time for a price change.

1. 1. You should incur those 12-20 showings in the first 30-45 days on the market.  If you are not receiving 1-2 showings a week or you have gone several weeks without any showings it may be time for a price change.

1. 1. Stay on top of the market.  Real estate markets are always changing…. Going up or down.  Don’t chase the market down.  When most people decide on a list price they are hesitant to make big price reduction.  Meanwhile, they are just chasing the market down.

1. 1. When and if you decide to do a price change, do it in a minimum of 3% increments.  Personally if a home has had a ton of showings and plenty of market time, I suggest a least a 5% reduction to  regenerate interest in your home.

1. 1. Selling your home is all about proper pricing.  There are no magic pills or techniques to sell your home.  Remove the emotion.  It is all about the historical data of similarly priced homes.

1. 1. One home does not make for a comp.  You want 3 homes or more of similar stats and location  to determine proper pricing for your home.   Time and time again I will pull data for a client, there will be one home that sells for 20 or 30k greater than the others where the bulk of the sales will be much  less, yet the seller will focus on the one high one.

How do I prevent listing my home for to high of an asking price

There are three things you can do to try and prevent from overpricing you home.

 

1. 1. Look at the data pragmatically.  Make the decision of where to list your home based upon recent solds in your area,  your properties stats and condition and general market conditions.  Do not let a real estate agent Buy Your Listing, look at and understand the data.

1. 1. Remove the emotion.

1. 1. Understand fair market value.  Fair market value has nothing to do with what your neighbor says, what you need for your home or emotion.  You can think your home is worth $500,000 but if a buyer doesn’t come along in a reasonable amount of time to pay that… guess what it is not worth it, no matter what anyone thinks.   As a matter of fact your have done more damage to the marketing efforts of your home by overpricing.

Contact a local Realtor to provide you with a comparative market analysis of your home.  Make sure they are prepared…. It is all about the data!!  I always want my seller to understand how and why they are pricing their home a certain way, not just accept blindly what I have to say.  You should also trust the information that your Realtor is giving you.

Lets Price it Right and Get It Sold!!

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Kevin Vitali of EXIT Realty has provided you with the article, Asking Price of Your Home- How will Home Buyers React?  Kevin has been helping homeowner sell their homes successfully for over 10 years in Essex County and Northern Middlesex County.  For questions regarding the sale of your home call Kevin Vitali at 978-360-0422