Real Estate Price Reductions – What You Need to Know
Do you need to get your home’s price reduced?
Every seller wants to get the highest price for their home. Unfortunately, sometimes the best possible price is not meeting your expectations.
If your home stays on the market for an extended period and you want to sell, you will have to drop the price. But when?
One of the questions many real estate agents get from their seller clients is, “when should I reduce the price of my home.”
There is not always a clear-cut and dry answer to this question; however, there can be some signals that scream it is time for a price reduction.
Choosing when to reduce the price of your home is not easy, but if you have to do it, you have to do it.
Most of the time, your real estate agent is the person best qualified to decide when to make the reduction, but ultimately the decision is yours.
The words “most of the time” is prefaced because numerous sellers make the mistake of hiring a real estate agent based on price and not on competence.
If you are a seller reading this, you may be in the unenviable position of being stuck with a real estate agent who has overpriced your home.
Unfortunately, many unprofessional agents in this business make it a strategy to lie to sellers about the market value to secure a listing. Awful and against the code of ethics, but it’s true.
If you have lost faith in your real estate agent and don’t know if now is the right time to reduce the price of your home, here are a few things to consider in your decision-making.
1. Can You Do More to Sell The Home?
Usually, your listing agent will cover all the bases necessary to sell your home but to verify that you are doing everything to move the process along never hurts.
You might want first to investigate whether other issues are causing your home not to sell. For example, is your agent doing everything they can to market your home sufficiently?
Does the listing explain the benefits of owning the home in addition to the features? A creative property description is an essential part of marketing. Did a professional shoot the photography, or did the real estate agent do it?
What about a video tour? Do you have a website for the home?
Have you done a direct mail marketing campaign? Is your “For Sale” sign in a good position, where it is highly visible? Does it list several different contact numbers and the website address?
Beyond these details, there are other things you can look at. Are you accommodating as many showings as possible?
You want as many potential buyers to see your home as possible, which may mean leaving your home inconveniently.
Also, are you paying your agent a competitive commission? You often get what you pay for with agents, so hiring someone who demands a fair commission is worth hiring. A lower commission Realtor often leads to a lack of success.
If you are nodding your head in the affirmative that all these things are being done, then maybe it is not your agent. One of the top reasons a home isn’t selling is the wrong price.
2. How Motivated Are You to Sell?
If you are motivated to sell, you will have to price your home according to current market conditions – which may mean selling it for lower than you want to.
If you are not that motivated, it’s OK. As long as you are in a position where you can hold off, there is nothing wrong with waiting until the market is more in your favor.
A buyer’s market has lots of inventory, which decreases competition and prices.
The buyers are in a strong position as opposed to the sellers.
It may not matter how exceptional your home is in a buyer’s market. There may be too many other options for the buyer to bite at your price point. This is the simple economics of supply vs. demand on pricing.
You can continue living in your home for a while or rent it out and wait out the market. You only have to sell when you want to – or when your circumstances dictate that you must.
To be clear, waiting could be a year or more. It does not mean waiting out buyers right now.
Some sellers think waiting will bring higher offers. This is the exact opposite of how things work in real estate sales. The longer a home stays on the market, the more significant the spread between the list and the sale price.
Days on the market are your enemy, NOT your friend! 99% of the time, waiting longer does not make better offers appear.
3. Remember That You Only Want to Reduce The Price Once.
In an ideal situation, you would price your home competitively and never have to reduce the price further. But sometimes, things are not perfect.
You or your agent may have overestimated what people would be willing to pay. You may have been so attached to your home that you over-inflated its market value. It happens, which is why sometimes you have to reduce the price.
However, it would help if you remembered that multiple price reductions would make your home undesirable. Lowering the price in the first place can draw some negative attention because it makes people wonder why no one bought it.
But the first price reduction can also attract buyers who want a good deal – as long as you reduce it enough to be competitive.
But multiple reductions will usually draw further negative attention, leading buyers to assume something is seriously wrong with your home.
4. Reasons to Drop The Price of Your Home.
When people ask, “when should I reduce the price of my home,” they are often looking for set reasons why they should do it at a specific time.
Here are some considerations to think about regarding whether it might be the right time to drop your price:
There Are Not Many Showings on The House
Not having much activity is a solid indicator that something is wrong, and it more than likely is the price.
If agents are not scheduling showings, there is a problem! New listings hitting the market almost always see a significant amount of traffic immediately if the market is decent.
The first few weeks your home is listed should be the busiest. Buyers want to get out and view the newest listing immediately, so they don’t get bought by someone else.
If your home is not getting this initial surge in traffic, you may have priced it too high. All those potential buyers could be waiting out there, seeing if you drop your price.
Remember, today’s buyer with access to everything online is very educated on home values. They are looking at homes daily on the best real estate websites for buyers to view homes.
The reason why the first few weeks that your home is listed for sale will almost be the busiest time is easy to understand. Buyers have seen the other homes available for sale already!
When a new home goes on the market, buyer agents will contact their clients immediately and schedule a showing.
Because of the internet and all the listing syndication channels, it is also likely that buyers will see the home immediately after it is listed for sale. This creates an initial burst of activity.
This is why most Realtors will explain how imperative to price your home correctly coming out of the gate.
You Are Running Out of Time
In some circumstances, there may be a need to sell a home quickly. There are plenty of situations where selling as soon as possible is a goal. If you need to sell quickly due to some future event, it is probably better to reduce sooner rather than later.
There could be any number of reasons, including moving because of a job change, family, you are going through a divorce, or maybe you found a home and need to sell before buying. It could be worth it to lower your price to keep your life in order and have less stress.
You Have Many Showings But No Interest
A common sign your home price needs to be reduced is lots of attention but no offers.
The flip side to having few buyers looking is having a lot of interest – no one offers any. Your home may appeal in many ways, but buyers will purchase elsewhere if the price isn’t right.
You don’t want your property on the market longer than it has to be. Consider a home price reduction if you garner tons of interest but no offers.
You Don’t Have Money To Make Improvements
Some homeowners have not done much to their homes over the years. Significant updates may be needed that you don’t have the money to do.
Maybe you have dated bathrooms, a heating system on the way out, an old roof, or dated wallpaper that needs removal.
All these things buyers will notice and play a role in what they believe your home is worth. If you are not in a financial position to correct issues with your home, you can’t ask for a price that does not account for these deficiencies.
You may have tried pricing taking these things into account, but it may not have been enough. Keep in mind a significant percentage of buyers want turn-key homes and will discount heavily when looking at homes that need updating.
Selling a house as-is might be necessary, but you must price accordingly.
The Real Estate Market is Changing
In a declining real estate market, your home may drop in value while it’s listed. You may have listed your home reasonably, but real estate values have dropped.
So the reasonable price you started at doesn’t look that way now. Other homes in your area may have dropped their price, making yours look expensive. There is not much you can do in this situation but drop your price to become competitive.
Nothing is Going On
As previously mentioned, most properties see an initial surge in interest from buyers. Your home may or may not have followed this pattern. However, your home has been on the market for months – you have a problem.
The ideal way to know if your situation is typical is to check out other comparable properties in your market at the moment – how long did they take to sell?
You may need to drop your asking price to get it sold if you are already 50% or more beyond that time frame.
One critical thing to remember is that the “days on the market” for your home becomes super important. The longer a home lingers on the market, the greater your chance of getting lowball offers.
The question that nearly every buyer will ask their real estate agent is, “how long has the home been on the market.”
You Relied on Inaccurate Pricing Methods
House pricing will be off if you don’t use proper analysis methods. Sometimes the price for your home was wrong the day the for sale sign was put on the lawn.
It could be that your real estate agent lacked the skill necessary to price accurately, or you were selling for sale by the owner and using a Zillow estimate of value. Put bluntly; you have better odds of spotting a big foot in your backyard than an accurate Zillow home value.
Sometimes a real estate agent will use rudimentary methods like price per square foot that lead to inaccurate house prices.
The House Didn’t Appraise
Do you know there is the possibility you may have sold your home for too much money? Unlike the previous reasons for when to drop your price, your property may have gone under contract, but the sale has fallen through.
If this happens, you’ll need to know how to appeal a low appraisal. Challenging an appraiser’s value is not easy.
5. You Will Sell if You Drop The Price to The Lower End of The Market.
If you want to sell and have done everything you can to move the home at the current price, you are left with only one choice – reduce your price.
So how do you determine your new, lower price? This is when a good agent can be beneficial.
Your agent can gather much information on previous home sales, pending sales, and current listings to determine what other sellers had to do.
There will be other people that reduce the price of their homes. Using all the data available, your agent can help you see what homes like yours are selling for, what they sold for a little while ago, and what they are likely to sell for soon.
You don’t want to drop the price lower than you have to. But you also don’t want to drop it multiple times.
Usually, the sweet spot for price reductions is in the bottom five prices of listings for similar properties in your area.
If you can price your home where it looks like a deal, you will attract the buyers you are looking for.
6. You May Start a Bidding War.
One of the advantages of putting your home lower on the pricing list is that you can attract multiple buyers at once.
When several buyers want your home, they usually present offers to one-up each other, which drives the price higher than the one you set.
You may not get as much money as you would have if you had sold for your original price – if you had ever sold, which was unlikely – but you might get lucky enough to make more than you expected.
What is The Average Price Reduction on a House?
The average price reduction for a home is around 3 percent. It is essential to realize your price reduction may need to be more or less than the average. Every circumstance is different.
What is The Best Day of The Week to Reduce Your House Price?
The best day to cut the price of your home is right before the weekend when most showings occur. Consider making a price cut on a Thursday.
Monday is also an excellent day to reduce prices because many real estate agents spend time in the multiple listing service after the weekend.
Final thoughts on Real Estate Price Reductions
One of the biggest misconceptions in real estate sales is that higher asking prices lead to higher sales prices. This is NEVER true when the price is WRONG. Don’t overprice your home! It is the kiss of death and stops many homes from selling.
Every day, thousands of homes across the country reduce their price. What this means is they were priced incorrectly. The data never lies. Thinking about your home sale as a business transaction with a less emotional attachment will lead to more intelligent decisions.