List to Sales Price Pressure

List low, sell fast; not exactly rocket science.  Virtually every statistic you can find shows that the highest sales price is achieved in the first 3 weeks.  Yet, Realtors have also been accused of listing low to get the quick sale.  Where in lies the truth?  I read one statistic once that said Realtors consistently list their own homes higher, take longer to sell, and get a higher price than similar homes because of it.  I believe the first two parts, not so sure about the last.  And is this market and the sales approach different in this regard than in past markets?

To begin with, let’s start with the notion that the highest price is achieved in the first month.  Why do Realtors believe this to be true?  Bodies.  More bodies come through in the first month than at any other time during a home’s marketing time.  Why?  Think of the market when a home comes out.  There is a pool of existing buyers; built up over time, that are actively searching for a home like this one.  This is the largest number of home searchers looking at the listing at any one time.  They’ve been looking and they are waiting for just the right home to come up.  After they’ve all seen or eliminated a home, a seller is dependent on new buyers entering the market.  In the beginning weeks, this pool of prospective buyers has three options and those options begin with the internet.

Option one: View and Eliminate.  While looking at Realtor.com, Zillow, Trulia, 1000OaksRealEstate.com… eh-hem… or any number of other home related sites; they see the new listing, its price, size, neighborhood, and they look at the pictures.  Then, they eliminate it from contention.  Something doesn’t appeal to them.  Perhaps its overpriced or maybe the pictures are poor, in any event, they eliminate it because they don’t perceive the value.

Option two: Visit and Pass.  They like what they see of the listing online enough to contact their agent and arrange a showing.  This is where the value comes into play, but also the Realtor’s marketing.  My mantra is the “3 P’s”; Preparation, Presentation and Price.  If the home was staged, de-cluttered, or highly upgraded, maybe freshly painted, and also priced aggressively, the potential buyer will act on option two.  If the pictures are a poor representation of the home, who would blame the would-be-buyer if they take a pass?  And who’s to blame on the selling side?  More than likely, the Realtor.  It’s their job to effectively educate the seller.  Being a real estate sales person means you’re always selling.  That selling doesn’t end when you get the listing.    Rather it continues throughout the entire process and includes selling the seller on those concepts that help them to sell.  So the potential buyer visits but for one reason or another, they pass.

Options three: Visit and write an offer.  Usually it’s visit and visit again, then write, but you get the point, now they’ve written an offer.  There’s a real estate adage that states: your first offer is your best offer.  I prefer, your first buyer is your best buyer, since the first offer is something you will likely negotiate to a price everyone can live with.  But why the first buyer?  Because they’re the one most likely to pay the highest price since they’ve recognized the value to them and are motivated to put ink to paper and write.  Once this fish gets on the line, we want to fight, cajole and reel them in; they are our best hope for the highest possible price.

The concept of 3’s that I’ve laid out – the buyer has three options, your success is predicated on the three P’s, and you achieve your highest price in the first three weeks are as true today as ever, and I would say even more so.  For this reason, price reductions are to blame for list to sales price pressure, and why pricing correctly at the outset is so important.  Reductions are how we attract buyers from the existing pool rather than only the new ones.  It’s what gets us closer to the time when we first entered the market and had a large pool of potential buyers to appeal to.  But when you reduce price on a $500,000+ home, how much of a reduction actually attracts buyer attention?  $10,000?  $20,000?  Think throwing a pebble in the ocean vs. a boulder in a pond.  To get the splash you want the reductions have to be big and that’s why you don’t sell for more by overpricing. When I examined my numbers for 2010 I found that when I sold in the first 30 days I achieved a 97.5% List Price to Sales Price ratio.  From 30-90 days that dropped to 95%, and 90 days+ it bounced back up to 97.5%.  Why? because by this time and repeated price reductions we finally found the list price it took to find a buyer and always lower than if we would have priced lower to begin with.

We know most markets have been slammed by distressed homes driving prices lower.  My Realtor friend Dave Walter puts it this way: Think of a pot of boiling water, add an ice cube – there’s little affect, but add many ice cubes and all of a sudden, your pot of boiling water isn’t boiling anymore.  This is our market and it brings the point home that if you’re not ready to sell; haven’t followed the proper protocol or your Realtor hasn’t, you are not going to sell in the first three weeks and thus leave money on the table and forced to take a lower price than you might otherwise.

I titled this blog, List to Sales Price Pressure, because in the end, we are in a beauty contest and a price war and if you lose the beauty part, you get clobbered in the price war.  Thus pricing still remains the key to this market based on the beauty contest component.  This approach is essential in any down market.  So to the question, “Is this market different than others?” we have to answer, yes but not from other down markets.  Because in a down market, it is always essential not to dilly-dally around, but rather accept the reality and price it where you’re willing to sell; or as I like to say, price it to the bone.  To do anything other, is simply the fastest way to a long, drawn out marketing period and lower sales price

About Tim Freund

Tim Freund has been a licensed real estate agent/broker since 1990. He spent 14 years as a new home sales rep, ran his own boutique resale brokerage for 5 years and is currently an Estates Director for Dilbeck Estates/Christie's International Estates in Westlake Village, Ca. Tim is a Certified Residential Specialist (CRS), an Accredited Buyer's Representative (ABR), a Corporate Mobilty Specialist (CMS) and a Senior Real Estate Specialist (SRES). Tim has successfully negotiated a loan modification for a client and is a professional short sale negotiator. Tim has been married 28 years, has 2 children, is a native Californian and has been a resident of the Conejo Valley since 1991.
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