Massachusetts Real Estate- Merrimack Valley

How Much of A Price Reduction Should I Have on My Home?

How Much Of A Price Reduction Should I have on my homeEvery home seller has high hopes their home will sell immediately and that there home is priced just right.  Unfortunately for some home sellers that is not always the case and they will be faced with reducing the price of their home if they truly want to sell it.  You will be left asking how much of a price reduction should I have on my home.

Pricing your home right from the start is ultra critical yet it doesn’t always happen.  Sometimes determining the fair market value of your house can be a fickle thing.  Some homes can be very easy and other homes can be harder, leaving much to subjectivity.  Pricing a home, at its core is calculated by using past properties that have sold that are similar to yours.  But, in the end there are no two houses or locations that are exact.

So How Many Homes Are Having Price Reductions

Right this moment, we are in a very hot sellers market, meaning sellers are in a very favorable position over buyers.  As real estate agents we are seeing extremely quick home sales, lack of housing inventory and multiple offers on many properties.

To give you an idea of how many homes are having price reductions I took a small city in my real estate market, Methuen MA.

In Methuen MA, during the past 6 months, 382 homes sold and 45 expired unsold.  In that same time period 162 homes had 285 price reductions, meaning 39% of the homes had one or more price changes before selling or expiring.

And, this is in a red hot sellers market!  The percentage will soar to 50-75% in a buyers market.

Reality is, you may at some point, be faced with a price reduction.

How Much of a Price Reduction Should My Home Have?

I am not going to go into when you should have a price reduction but I do suggest you and your agent review the activity and pricing on your home every 3 or 4 weeks.  In most cases if your home is not selling it is probably overpriced.  If a price change is required it is important to do it sooner rather than later.  This leaves you wondering how much of a price reduction is required to sell your home.

As a seller it is human nature to not want to give up to much. But there are strategies and buyer perceptions to take into account when consider how much of a price reduction you should have on your home to get it sold in a timely manner.

Don’t Miss. Red Hot Sale 1% off of Everything in the Store!!

What prompted me to write this article is someone had a $1000 price reduction on a home from $318,000 to $317,000.  They were puzzled why that didn’t seem to bring in a flood of new buyers. 

First, I was joking with my heading here.  But who would drop everything and run off for a red hot 1% off everything sale at their favorite store.  $1,000 dollars off $318,000 is roughly one third of one percent… WHOOHOO!  You get my point.

Think about it.

If your home is priced at $318,000 and has been sitting on the market and someone liked your home but thought it was slightly overpriced, they would make an offer.  They would probably start negotiations somewhere in the neighborhood of $300k to $310k and probably meet you in the middle. 

What does that look like?  Maybe $309,000 that is roughly 3%.  Yet the buyers are not coming or if they are they are not making offers.  You most likely missed the proper price on your home by at least 3% or more. 


The Key To A  Price Reduction On Your Home

Let’s dig a little deeper.  Whats the key objective of a price reduction?  Of course you might answer to get your home sold. 

But to get your home sold you need to introduce it to a new group of buyers.  Buyers that are not aware of your home in the market place need to know it is available. 

This is the true objective of a price reduction.  As pointed out above, the available home buyers in the roughly  $300k to $325k have rejected your home at its current price.  Short of new buyers entering the market you have exhausted most of the home buying community for your home in a certain price range. This means your home does not compete with other homes that are selling based upon size, location condition, etc….in the price range you are listed at.

That’s right your home is not competing.  Most buyers that view your home, either online or in person, have not found your home to be a fair deal based upon price, location, condition size and etc… as a matter of fact, most move on in a short period of time to buy a home they think has the value they are looking for.

How Do Home Buyers Select Homes?

Before we talk more about a price reduction lets look how home buyers select homes from a pricing standpoint. 

A buyer comes to me with certain criteria.  Usually all of their criteria is dictated by price.  I set them up to receive daily emails in a price range that is determined by the maximum a home buyer is willing to pay or can afford.

What does that look like?  If a home buyer says they can afford up to $295k I usually round it up to the nearest quarter so their maximum price of homes they would see is $300k.  I am generally setting the maximum price at the 25, 50, 75, 00 price points.

So a home that truly belongs in the $275,000 to $300,000 price range that comes on the market at $318,000 is not even under the radar screen of most of the true buyers for your home.  They probably don’t know it exists because they stopped looking at $300,000.

Reducing the Prrice Of YOur Home

Your Price Reduction Needs to Expose Your Home to a New Pool of Buyers

Now that you know this, you can certainly see why $1000 price change is probably not going to get your house sold. Not even a 1 or 2% price change will alter the course your home is on. 

There is certainly a direct correlation between getting top dollar for your home and the time your home spends on the market.  The longer it sits unsold the less likely it will sell for what you want or even sell at all. 

A balance needs to be achieved and while a small price changes of 2% can have a slight benefit, it might not get you where you need to go quick enough.

In most cases if your home has failed to sell at a certain price point you need a minimum of a 3% to 5% price change to attract a new set of buyers to your home.

It is important you work with your listing agent to discuss where the real estate market is, where it is headed, re-evaluate comps and the list to sale price of current homes sales.

The list to sale price is the percentage of a homes sale price compared to its list price.  In this hot sellers market. There are segments that are selling at 99-103% of list price.  And, you may get by with a smaller price change of 2-5%.

Alternately, when the market swings and becomes a hot buyers market that percentage can can be more in the 90% to 95% list to sale price.  In this case you may need to be thinking of a price reduction of 5% to 10%.

Just remember two things.  Real estate is local and past sales history will give you insight on what to do.  So what might work here in Massachusetts might not work in Arkansas.  Talk to your agent and have them provide the data.

One Price Change Strategy That Can Backfire

There is one price reduction strategy that you may be inclined to employ because your scared to leave money on the table.  That strategy is to make small price changes until your home get sold.

Why can this strategy backfire?  This strategy is horrible if you are in a buyers market or a market transitioning from a balanced to buyer’s market.   This translates into the market declining.  In the last 10 years we had years where properties were declining form  .5% to 1.2% a month. 

You end up chasing the market down and never get your home into the proper price range for the right set of buyers.  Your house needs to be on the market for a period of time, usually a minimum of 14-21 days and up to 30 days for the majority of home buyers to be aware that your home has made a price change.

Final Thought On How Much of A Price Reduction Do You Need to Sell Your Home

You can avoid price reductions all together by pricing your home just right to begin with.  While sometimes pricing can be fickle, the comparable sold will usually be revealing.  It takes working with an experienced agent and reviewing the comparable properties carefully.  Base your pricing decision solely on data, past history and where the market has been and where it is headed.

Remember fair market value is a range, it is not one number.  The other thing to remember is ultimately sellers pick the list price. 

Many sellers automatically want to list their home at the high end of the range… and then want to add money on top!  And some agents will let them, afraid of losing the listing!

So many sellers choose an agent on the highest value they receive rather than listing agents experience, reputation and most importantly, the strength of their marketing plan.  Sellers have trained many agents to push to the very high end of fair market value by doing so.

Price it right from the get go and avoid having a price reduction and get it sold for top dollar and quickly!

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