Why asking for too much when first listing your home can cost you big bucks

David Howell, executive vice president and chief information officer at McEnearney Associates, writes an occasional column on the Washington area real estate market.

It is critically important to price a home correctly when it first comes on the market. The reason is simple: The greatest numbers of buyers are going to see the house during the first two or three weeks.

Sellers who price their home correctly are likely to be rewarded. Those who overreach, who think they can “just wait for the right buyer to come along,” are likely to be disappointed, as that usually means the house will sit on the market and take a big hit financially.

Recently, my team at McEnearney Associates took a look at all resale homes that went to settlement in the Washington area in October and November and broke them down into just two categories: Those that had to reduce their initial list price before receiving a ratified contract (homes with the “wrong” price). And those that came on the market at the “right” price and never had to drop their list price.

The consequences of pricing strategy were starkly different, as the table shows. Homes that had to reduce their price before attracting a buyer were on the market three times longer — an average of 98.1 days — compared to correctly priced homes that sold in just 30.1 days. Sellers of homes with the right initial price were less likely to pay any subsidy, and when they did, it was likely to be a smaller subsidy.

But the biggest impact of pricing strategy is on the seller’s bottom line. Homes that sold without having to reduce their price sold for an average of 98.4 percent of the list price. Those that came on the market too high had to reduce their price by roughly 6 percent before a buyer was willing to make an offer. And when that offer came in, those sellers had to negotiate a further reduction, ultimately settling at an average of 10 percent below their original price.

Are there exceptions to this? Of course — but not many. And does this vary by area? Yes. The differences are even more pronounced in the hotter market areas, and below we’ve broken out our analysis for Loudoun County, Montgomery County and Washington.

Homes that hit the market at a price that attracts buyers are sold in an average of just one month and sell very close to list price. The wrong price means more than 90 days on the market and a 10 percent discount to original price.

Buyers will move forward on homes that are priced correctly, and they will take a pass on ones that aren’t. Getting the price right from the beginning is the most important thing a seller can do. It really is that simple.

The impact of pricing strategy is similar for each jurisdiction. Getting the price right when a home first comes on the market pays dividends for sellers.

In general, homes that had to drop their price before attracting a buyer were on the market three times as long as those that were priced correctly. In D.C. — the hottest market in our region — it was four times as long.

Correctly priced sellers in D.C. also had a better bottom line, with homes selling on average right at list price. Those sellers that had to drop their price took a bigger hit than elsewhere in the region, selling on average almost 12 percent below the original list price.

Source : WashingtonPost.com