Understanding when a list price isn’t working – and why – is a crucial skill for a listing agent. That knowledge can be used to get the sale back on track. Make no mistake, there is a right way to lower your listing price – and a wrong way.
This topic is obviously closely related to the choice that was made on how to price the property and which of the three approaches the seller and their agent took with the listing.
Let’s focus on when the seller has listed at a price they want for the property and are hoping to sell it for close to that price. There’s two key questions that need to be answered.
How do you know when a list price isn’t working?
While this may seem like an obvious question, the answer isn’t simply “When it hasn’t sold yet.”
One of the benefits of using an experienced Realtor who understands market statistics is they know when something is worth getting worried about – and when something is perfectly normal.
The media tends to tell real estate stories that are extreme examples of success or failure. In a hot market, we see lots of articles about the home that sold in one day for hundreds of thousands over the asking price. This leads sellers (and inexperienced agents) to assume the same will happen with their property.
The reality is that there is no one market and that what may be happening for a particular housing type, at a certain price point, in one area of the city, can be very different than what is happening to other listings.
As such, the way a seller knows when their list price isn’t working is by comparing it against the market norms for their housing type, price point and area. If you’re selling a condo in the $700K range, in an area that typically sees such properties sell in 30 days, then the property not having sold in the first week is not a cause for alarm.
The good news is that a seller doesn’t have to wait until they pass that date to get a sense as to whether their list price is working. Realtors have access to a number of statistics for their listings and can share how the listing is doing against the key metrics like number of views on the MLS listing, number of showings booked, feedback from Realtors and number of offers.
To use an analogy, ticket scalpers for games know that if they haven’t sold their tickets by 20 minutes before the game starts, they might not sell them at all. That’s the point at which they will accept any reasonable offer rather than receive nothing for the tickets. If a scalper started discounting their ticket prices two hours before the game because they were panicking because they hadn’t sold, they clearly don’t know what they’re doing and should consider another career!
When you work with an experienced Realtor who understands the market for your home, they can tell you when the list price needs to be lowered. That leads us to the next question that needs to be answered.
What’s the right way to lower a listing price?
There are two main approaches that sellers use to lower their listing price once they realize it’s time to adjust the price. One works much better than the other.
The first approach involves lowering the price by a small amount and looking to see how the market reacts. It sounds reasonable but it is often a disaster.
When a buyer looks at a home that’s listed at a certain price, accepting offers at any point, they understand that in all likelihood, the seller would take a bit less than that asking price. The buying agent they are working with can tell them the average sale to list price ratio and inform the buyer that this type of home, in this area, at this price range, typically sells for X percentage lower than the list price.
A small price reduction is almost always less than what buyers have already factored into the probably sale price. If a $700K condo that is in a building where properties typically sell for 97% of asking price lowers their price by $5K, buyers shrug and keep looking. After all, they already knew that they could probably get around 3% off that price, which puts it at $679K. If they weren’t interested in the condo at an anticipated sale price of $679K, a new list price of $695K doesn’t change their level of interest.
It is very common for us to review the history of a listing that takes a long time to sell and see a series of small price drops that fail to recapture the attention of the market. If the market is indicating (via a lack of showings and offers) that a property is overpriced, then a slight price drop means the property is still overpriced, just not as badly as before.
Such listings often eventually sell for considerably lower prices than the average for the area. The listing becomes stale, where potential buyers see it has been on the market for a longer than normal time and assume there must be something wrong.
It’s not the way to get the home sold for the best price and listing agents who use it are often not confident enough to make the seller understand that while it’s a bitter pill to swallow, the price needs a substantial price drop to capture the attention of the market.
This is the second approach to price drops and the one that is recommended when a listing fails to sell at the initial listing price.
By taking their medicine all at once and lowering the price by a substantial amount, the sellers indicate to the market that they understood it was overpriced before and they are now willing to accept a fair price.
The exact amount is of course dependent on the original list price but a drop of 2.5% is typically sufficient to send the right message to the market. If it lowers the price beyond a major threshold (for example $1,030,000 to under $1M) it has the benefit of attracting buyers who might not have seen the listing in their search before as it was above their budget.
A savvy listing agent can use that price drop to apply new pressure to buyers, implying that this new, substantially lower price is likely to generate lots of new showings and offers. Any interested buyer should understand that given it was a significant price drop, the new price is more or less what the seller will accept. It’s an effective way of changing the power dynamic from a seller with a home that won’t sell where buyers feel free to submit low offers, to a property that is back in demand and that requires prompt, reasonable offers.
While any listing price drop is not a pleasant decision for a seller, if it is done with the right approach it can get the sale back on track and give the seller the best sale price the market is willing to provide.