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Market Value is Market Value is Market Value

ADDED ON March 29, 2012 3 COMMENTS

Spring comes but once a year. Once it is gone, wave goodbye. Even in a buyer’s market, a well  priced home will get healthy demand and avoid being an October straggler where the buyer exerts leverage because they know they have no competition. This is why I advise my seller clients to understand the crucial importance of pricing correctly. The biggest mistake I see is ignoring an obvious price point that costs precious exposure and opting to pad the price by a small amount-maybe only 1-2%- to “build in a little negotiation room.” In a price-sensitive market like Westchester County, this is a fatal mistake.

As an example, consider a home that a comparative market analysis indicates as being properly priced at $500,000. Typically, we would price the place at $499,900. On occasion, a seller decides that they’d like to try it out for $509,000 to “get a little negotiation room.” The mistaken belief is that the offers will come in higher because they are asking a little more. The reality is that the offers won’t come in.

  • Many would-be buyers won’t even know the house is for sale because they only looked up to $500,000 (an obvious dividing line for many), and they never saw the house. These people see other homes and buy something else.
  • Lookers and online market watchers see the house, but refrain from doing anything because they will wait for the price to come down.
  • Those left over (who wants leftovers?) may see the house but choose a more competitively priced home.
  • In rare cases, you do get a bold buyer who makes an offer, but not only for what they think it is worth. In other words, the extra “padding” means nothing to them. They’d never offer more just because you asked for more. They might actually bid lower just to speculate.

The argument I get in favor of that extra little padding is that people can just make an offer. But as I have pointed out, by pricing incorrectly, many people either didn’t even see the place or opted to make their offer on a more reasonably priced property. It is human nature. Buyers gravitate toward what they perceive as a better value. Given the huge number of homes in competition with your home, that isn’t a stretch. You cannot manipulate outcomes. Overpricing never gets the seller more money, because buyers will always make offers based on what they want to pay, not what the seller speculatively asks. Market value is market value. 

Often, by the time sellers get wise to the dynamics of pricing and buyer trends, the window of opportunity is lost. We are then “chasing the market,” as more aggressive home sellers reduce their prices to get sold. The spring rush tails off, and it becomes an all out pricing war and beauty contest where competition suppresses prices. All too often, these are the homes that go into the autumn as stale listings facing a price reduction that is lower than the seller’s original bottom line. Buyers are funny like that; if a home is on the market longer than 60 days, they wonder aloud what is wrong with it! In a market like Westchester County with a median price of over $500,000, that is very costly for the seller.

The high bidder always gets the house. In cases where that bid comes from the seller, they unfortunately keep the property. You can overprice, price fairly, or price to sell. We advise to err on the aggressive side, because that actually nets the seller more and cuts down on the wait.

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3 Responses to “Market Value is Market Value is Market Value”

  1. March 29, 2012 at 12:57 pm, Jason Balaban said:

    Great post Phil – this dictum never gets old. The only thing I can add, that’s only partly related, is that I often hear my clients say; “If the home is priced correctly it sells”. I always caution them not to overstate that. As important as price is I think they’re doing themselves a disservice when they inadvertently communicate to homeowners that “if its priced right, it sells” – what they’re saying is “My service, marketing, negotiation skills, experience, network, etc. isn’t really material”. In other words, if it’s priced right you don’t even need a Realtor – which is the wrong message for so many reasons. So I think price should be regarded as a really important part of the entire strategy, and certainly to your point, a component, that if mishandled will sink you.

    Reply

    • March 29, 2012 at 1:24 pm, J. Philip Faranda said:

      True, you could be priced right but invisible. You need MLS exposure to be priced on the market, and in this environment you need an advocate who knows how to negotiate, vet buyers and do 1000 other things a lay person doesn’t even think of. I’ve spoken with dozens of FSBOs in the past year who say they have a buyer, but in reality those are just people that agree they like the house. They aren’t ready willing and able.

      Reply

  2. April 06, 2012 at 3:56 pm, Rich Cederberg said:

    “The high bidder always gets the house. In cases where that bid comes from the seller, they unfortunately keep the property.” Waiy, but we wanted to sell the house to someone else! lol

    Reply

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