The Art of Home Pricing: Portland, Las Vegas and Orange County as Case Studies
Pricing a home can be a delicate situation. On the one hand, the price needs to make sense to the buyer: buyers and their agents have access to all the listing and selling prices for comparable properties in your neighborhood (statistics known as “comps”). They may also know what you bought your house for and when, via public record. They may have a very set idea of what your house is worth, based on the current market.
On the other hand, there’s you, the seller– and this is your home. You have an emotional attachment to it based on memories, life changing events that took place within its walls. You know how much time you spent in this place, and on this place, making it special. You may then have a different sense of your home’s worth than a buyer, who really has no connection to the property at all yet.
The problem with this mismatch becomes worse when a house lingers on the market, unable to attract a buyer because it’s not priced right for current conditions. And often, the seller can’t wait indefinitely for someone to agree that the home is “worth” the listed price. When sellers need to sell and they have priced unrealistically for their market, they have to reduce their asking price. And fair or not, buyers often see one price reduction as a sign that more will come, or that a low ball offer may be welcome.
This explains why pricing a home right when placing it on the market is so important. Obviously, an experienced Realtor could help you with this, as s/he knows the local conditions, and is more objective, less emotionally involved, than you may be. But you shouldn’t be passive in the transaction: after all, no agent can force you to list your home at a particular price. If you understand your local market and you learn to read the signs that point to the “right price,” you save yourself much heartache and stress over the course of your home’s sale.
This week then we dedicate to the art of pricing.
Market data collected from the areas ZipRealty serves shows us that pricing is always a challenge. Yet while some areas seem to do a better job than others at picking the right price the first time a home lists, this difficult time in real estate history has made the “art of pricing” more difficult than ever to perfect. The following charts illustrate 3 metros’ sale structure in terms of price changes. Each transaction has been recorded with indication of whether the property sold at the initial price, or after price reductions, meaning the seller had to come down in asking before the home sold (occasionally, a price will increase before a home sells, but this is much rarer than reductions). The total transactions are plotted in 100% scale, each bar representing a percentage of the total.
1) Portland, OR
During the last 2 years, sales with price reduction in Portland have had fluctuations from 30% to 55% of all transaction (sales with price increases have, predictably, contributed only a small portion of the sales, approximately 2% – 6%). 30% is clearly preferable, from the seller’s perspective; 55% is almost double that, a huge jump. Portland’s case then is interesting because it indicates less predictable pressures on the market than comps and seasonality. Local Realtors may be able to shed light on what happened those months when so many more sellers had to reduce their prices than in previous months. (If so, we’d love to hear from them!)
2. Orange County, CA
During the last 2 years, sales with price reduction have increased to a level of 50% of total transactions. This fairly steady increase in reductions may indicate that sellers are having difficulty adjusting to and accepting what buyers currently consider “market value” – a value likely affected by economic malaise in general. Again, local agents will know better why this number is growing.
3. Las Vegas, NV
Las Vegas, among the metros studied here, has the most increases as well as decreases- and as a result, the least number of homes that sold for original list. Over the course of the last 2 years, approximately 80-85% of properties have sold at prices either above or below asking prices, meaning the volume of sales at asking price has stayed around 15-20% the whole time—a very unique and dynamic situation for sellers and buyers both.
So what do these data teach us? In short: Selling is even more of an art than ever. We’ll be back Wednesday with tips on how to assess your home’s value, and perfect the art of pricing, in these turbulent times.