UPDATE - 11/2/2017 - This is an older post that was made in a declining market. The market is definitely better today but we still get sellers that want to list their homes higher than market value. Read the rest of this post to see why that's not a good idea.
A seller gets the most interest in the first week or two of listing a property. If they start out too high, buyers lose interest and move on to other homes. That first wave of buyers might have purchased already by the time sellers price their home correctly, so their final reduction won't hit as large of an audience. I always remind sellers that unless they're lucky enough to find a cash buyer that falls in love with their home, it will have to appraise for any buyer using financing.
It seems like most sellers are simply "chasing" the downward spiraling prices and are one step behind where they should be. When they reduce again, it still should be lower. Even I have had listings where it took a while to convince sellers they needed to go lower. A lot of sellers just don't realize that it doesn't matter what they need or want. What matters is what the current market will bear.
I had an Orland Park home for sale that I took knowing it was priced a bit high and had expired with the previous brokerage. But it was a beautiful home and they had actually received an offer at a higher price but the timing wasn't right for them (the buyers wanted a very quick closing), so they let it go. They expected to get another offer, especially since they lowered their asking price to list with me.
And we did get two offers pretty quickly. However, both offers were $39,000 lower than the list price at the time. In fact, both offers were exactly the same! But both offers were turned down as they were contingent on the sale of the buyer's homes which were not even listed yet.
We went through several price reductions. The longer we kept the house on market, the lower prices were going because of the slow Buyer's Market. Every time I convinced the sellers to reduce, the market declined at a more rapid pace. So we were chasing the market
Then something changed. The sellers found a house they wanted to purchase. They sat down with their mortgage broker to figure out how to get this home without having their current home sold. They decided to do it in the hopes that their current home would sell within a reasonable amount of time so they didn't have double mortgage payments any longer than possible.
Now they had a great motivation to price correctly. Yet we still had to take it two price steps before we hit that sweet spot. Showings were decreasing. Buyers loved the home but it was in the top 2 or 3 and they ended up buying something else. There wasn't any more time to play the market. They had to get real.
They finally listed their Orland Park home for sale at my suggested price
Once we found that price, the price I had tried to get them to list at for months, activity picked up again. We received an offer within a week of lowering to that sweet spot. Lo and behold, the next day we received a second offer. In this market!
It came a day after the first offer, which we were negotiating because it was a lowball offer that actually offended my sellers. So I had to calm them down and try to get them to understand that the buyers were responding to the doom and gloom of the news and were simply making an offer. That's what negotiations were for. Easier said than done. I knew they were upset with this offer.
The 2nd offer was higher than the first but still not where my sellers felt it should be. The bidding war began. In fact, the first buyers didn't believe there really was a 2nd offer. I guess they felt I was using this tactic to get them higher. They don't know me and don't know I wouldn't do such an unethical thing.
Yet they kept coming up in price. What started out as an offer so low it angered my sellers, they were now near full price! However, my sellers decided to go with the 2nd buyers, who also came up close to full price. I guess the fact that we didn't accept the first couple's offer made them realize that we truly did have another contract.
Pricing too high wastes time on market
The moral of this story is that if my sellers listened to me in the beginning their home might have sold quicker. They might not have had to even worry about special financing (a bridge loan) to allow them to purchase their next home, worrying about how long it might take to sell their current one.
I presented them with facts such as preparing several Comparative Market Analysis updates throughout the listing. But sometimes sellers need to take some time to face the facts. The sellers that do will still be able to sell in this market. They might not like the numbers, but if they have to sell there is a point where they have to accept that this is the market they're in right now. If they don't have to sell, maybe they should wait.
But as I've written before, if a seller is upgrading to a higher priced property, they will actually be better off in the long-run as the higher priced homes will also be dropping at a higher dollar amount. For example, let's say your home would have been worth $300,000 in a better market. Prices have dropped 20% (example only), so your home is now worth $240,000 for a "loss" of $60,000. You are now looking in a higher price range. Let's say the homes you are looking at would have been $500,000 in a better market. Take that same 20% price drop and that $500,000 home is now worth $400,000, for a "loss" of $100,000. That might have been an additional $100,000 you'd be financing. So in this scenario you'd be doing well.
The real problem are sellers that paid top dollar for their properties during the Seller's Market that owe more than their homes are worth. But that is another story.
If you're ready to buy in this ever decreasing market, give Judy Orr a call at 708-536-8200 or use the contact form.