How Fast Do You Drop The Listing Price?

By
Real Estate Broker/Owner with Catarra Real Estate, Inc CA BRE #01191946

The old phrase "time is money" is more true in real estate than most industries.  The longer a home sits on the market, the lower the final selling price relative to start price.  This is true in Los Altos and the rest of Silicon Valley.  In this part of the world, a home priced right relative to location and condition will sell in a week or so.  Ongoing negotiations might push that sell date out to 3-4 weeks.  However, if there's no activity - no disclosure packages downloaded, no offers (verbal or written), and few or no duplicate showings, then it's time to drop the price.

Stage 1:  Reduce the price after 14 days on market

A price reduction in the first two weeks is ideal because the home is still "fresh" in the eyes of the market.  Consider it a "do over" because you priced it so high.  Buyers will forgive that little indiscretion just this once.  If you push the reduction to 30 days or more the home will no longer have the same fresh feel and buyers will wonder what's wrong.  While the listing is still considered "new" and buyers are intrigued with it, keep their attention with a price reduction.  The percentage of the reduction depends on how far the asking price is over the suggested valuation.  If the original suggested listing price was $1,398,000 and it's priced at $1,600,000 (with no buyer prospects), then the price needs to come down to at least $1,498,000 and would be better at $1,398,000.

Stage 2:  Reduce the price after 45 days on market

As a rule, if a home is listed for more than 10% over the comps it will lose over 90% of potential buyers.  They skip it because it's overpriced.  In stage 1, I used the example of a home priced at $1.6M that should be $1.4M and suggested an initial price drop of $100K.  By cutting the overpricing in half, I recaptured half the buyers.  However, pricing within 3% of the anticipated selling price will get me over 90% of the buyer market.  So if the home has been on the market for over 30 days, it's time to get the price down to exactly where it needs to be.  This is because buyers now regard the property as being stale, possibly with problems, and likely to offer less than the asking price.  In Los Altos, 45 days on market is still not too long so coming down to the market price will likely get at last one offer.

Stage 3:  Over 60 days on market

At this stage, the home starts to lose value.  Looking at Los Altos homes on the market longer than 60 days, many receive offers and ultimately sell for less than the original target listing price - market value at the beginning of the listing.  This isn't always true, but often.  Pricing right to begin with prevents losing value.  It also makes a strong case for making fast price reductions.  Keeping the Los Altos buyer pool engaged is critical in retaining value.  The home in the examples above might ultimately sell for $1.35M which is abotu 97% of the target asking price but that means it would lose $50K from what it could have gotten in the first place.  It's important to price right to begin with but if not, fast price reductions are essential.

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Topic:
Real Estate Market Trends
Location:
California Santa Clara County Los Altos
Groups:
Realtors®
San Francisco Bay Area Real Estate
Tags:
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sale
home
property
reduction
listing
price drop
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Comments 33 New Comment

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Rainer
94,507
Billi Evans
Murney Associates

I totally agree with your reasoning and try to convey this to my sellers from day 1.

March 01, 2011 08:57 PM
Rainmaker
506,195
Patricia Aulson
Realtor - Portsmouth NH Homes-Hampton NH Homes
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate

Time is money that's for sure.  I like the post today and your scale sure makes sense.  I've bookmarked the for the future.


Thank you!

 

Patricia/Seacoast NH/ ME

March 01, 2011 09:05 PM
Rainmaker
508,110
Mitchell J Hall
Lic Associate RE Broker - Manhattan, NYC
The Corcoran Group

Every market is different. I find in my market pricing is as much of an art as a science. The market moves fast and I try to price to the future not the past. I don't have a crystal ball but a pulse of the market that comps don't always show.

We have about a 3 month lag time between accepted offers and closings.  Last years comps might not be that relevant of an indicator for today's market. Current contracts are a better indicator.

Different strategies may work for different properties and sellers. There are many variables to consider. Sometimes larger homes are in play and sometimes the smaller ones are. One neighborhood can be hotter than another at times. So inventory, location, size, condition, economy, timing are all considerations in addition to comps of previous closed sales.

I have no problem reducing price and discuss that possibility during the listing presentation. I usually wait about 3 weeks depending on the activity and interest. (minimum 2 open houses).

I agree time is money and the longer on the market the lower the eventual sale price. The best buyers tend to come when the listing is new.

March 01, 2011 09:20 PM
Rainer
222,721
Geoff ONeill
John L. Scott Medford

2 Weeks is a great start.  After that, I think every two weeks until it sells. :-)

March 01, 2011 09:31 PM
Rainer
14,154
Lisa Papp
RE/MAX 1st Advantage

It is so hard to explain to sellers sometimes why there home isn't worth what they think it is. I let them know what I think it should be listed at and why and if there price is not to crazy over then I say we can try it for 2 weeks and if at the end of 2 weeks you are not getting any activity then we lower it to a more realistic price. I also have a price reduction form with me so it is already in writing and I don't have to beg later for it.

 

March 01, 2011 09:53 PM
Rainmaker
338,296
Navona Hart
Real Estate Agent, Farmville Virginia Homes & Land
Real Living Cornerstone

Good post with a decent time line attached.  I think the problem is most agents choose to do nothing....until it is absolutely too late. 

March 01, 2011 09:55 PM
Rainmaker
537,948
Ginger Harper
Your Southport~Oak Island Agent!
Coldwell Banker Sea Coast Advantage

Great plan of action.

Great post - thanks. 

 By the way, if you know of anyone looking to move to the Coastal area of North Carolina... refer them to me and I will gladly pay a 30% referral fee on any resulting closed transaction.

Ginger

March 01, 2011 10:19 PM
Rainer
30,516
Danell Estrada
Highlands Ranch Appraisals, LLC

As an appraiser I have to look at all the List to sale percentages and make adjustments for comparables that are actives and under contracts. This is usually 2-3% for Colorado. The ones that are listed reasonably sale really close to list price and usually within 1-2 months.

I think it is better to list home reasonably for its market so the the selling process does not take so long.

March 01, 2011 11:16 PM
Ambassador
1,158,931
Tammie White
TW Realty Group, Franklin TN, South of Nashville
Benchmark Realty, LLC (615) 495-0752 or www.TWRealtyGroup.net

This sounds like a good plan of action. Now, if we could only convince our sellers of this.

March 01, 2011 11:34 PM
Ambassador
1,232,927
Kathleen Daniels
San Jose Homes for Sale - Probate Specialist
KD Realty - 408.972.1822

Bryan, I’ll drop at day 10 if the activity (or lack of it) warrants a drop before day 14. Generally speaking … 14 days is the magical number.

March 01, 2011 11:43 PM
Ambassador
1,082,542
Bryan Robertson
Broker, Author, Speaker
Catarra Real Estate, Inc

Chris - I agree, different rules for different markets.  You should post an article on what works there.

Donna - I always try to price it right but sometimes the seller demands "wiggle room" and thus decides to overprice it.  If they're willing to drop the price after trying, I'll take the listing and work with the seller to get the price where it needs to be.

Robert - I don't put a plan in the contract but I do have a handshake agreement with the seller that we'll drop the price if there's no activity at the price they select.

Kevin - That makes me feel really good, my guidance used for training.  Thanks!

Karen - I completely agree - the faster the seller gets the better it is for them.  If I could shorten the steps from 3 to 1 I'd do it in a hearbeat.

Marge - It's great that you're getting that in the contract to start.

Olga - Good point.  30 days max or it really hurts the listing.

 

March 02, 2011 12:37 AM
Ambassador
1,082,542
Bryan Robertson
Broker, Author, Speaker
Catarra Real Estate, Inc

Billi - Thanks!

Patricia - You're very welcome!

Mitchell - You've got a very complicated market in New York, including 90 day close periods.  It sounds like we're generally in sync but perhaps 3 weeks works better where you are.  I definitely agree that a couple of open houses are necessary before jumping on a price reduction.  That ensures the homes has been seen by as many buyers as possible.  Great comment!

Geoff - Great idea, thanks!

Lisa - Good job getting it in writing in advance.  I don't do that but it's an excellent idea.

Navona - I think you hit the nail on the head.  Many agents will let the listing sit for 2+ months before taking any action.  If the seller is unwilling to make a price adjustment while other similar homes are selling, then it's not a good time to sell and the agent should get it off the market.

Ginger - You're, welcome.  I'll keep that in mind.

Danell - That's good for sellers to know - appraisers take into account unsold inventory.

Tammie - It's hard to do but that's why they pay us.  I'd rather discuss a necessary price reduction with a client than try to explain why the home hasn't sold.

Kathleen - I agree with you and you know this area very well.  Inventory is moving quickly and buyers are very fickle.  We need to be very dynamic in adjusting to the market.

March 02, 2011 12:59 AM
Rainer
85,092
Melody Russell
Ranked as 1 of TOP 3 Santa Cruz County Realtors.
Keller Williams Realty, Santa Cruz, CA.

Great post. Valid points. It is important to not put our sellers at risk by pricing right from day one.

March 02, 2011 03:26 AM
Rainmaker
1,248,865
Carla Muss-Jacobs, Principal Broker/Owner
Buyer Focused ~ Buyer Results
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time

Some good formulas, but the market (at least here) can turn in 45 days.  The loss of buyers from the onset of a listing can't always be picked up just from dropping the price.  If we're talking Oct, and 45 days later mid-Dec, when the market is S-L-O-W due to the holidays and weather -- buyers are just NOT out.  Doesn't matter the sellers dropped price, they missed the market for the season, and may need to wait until spring to see the buyers out and about again.

March 02, 2011 02:02 PM
Ambassador
1,082,542
Bryan Robertson
Broker, Author, Speaker
Catarra Real Estate, Inc

Melody - Thanks.

Carla - You make a good point.  Market timing is critical and the days on market have to adjust depending on the time of year and other circumstances.  Good point!

March 02, 2011 11:30 PM
Rainmaker
46,614
Roy Paeth
FHA USDA and Homepath Mortgage Loans Illinois NMLS
Command Capital Mortgage Services

Great explanation Bryan based on the responses it sounds like you are spot on for your area.

March 02, 2011 11:52 PM
Rainmaker
424,892
Richard Yates
Broker and Realtor Orange County, California

Bryan, Congratulations on being FEATURED.  I think you did an excellent job of laying out a reasonable timeline for appropriate price reductions. I agree with your timelines and personally do not recommend a price reduction prior to 2 weeks unless there are special circumstances.  I believe in marketing a property and that may require more time to fully implement a marketing plan.  If it has been 2 weeks and no showings or just a couple of showings, it may not be the price, but lack of exposure to the right group of buyers.  Why are they not coming.  Is price the reason?  It usually is, but, occasionally it is not the price.  It might even be the weather.  I always seek feedback from agents, buyers or neighbors, but, without that, I go back to the competition to see if anyone else has sold or how we compare to the remaining active listings. Great job and best wishes always.   

March 03, 2011 09:21 PM
Rainer
332,937
Paul Gapski
619-504-8999,#1 Resource SD Relo
Berkshire Hathaway / Prudential Ca Realty

wow what a good post. i will save this and show sellers to get price reductions. ty

January 28, 2012 10:06 AM
Rainmaker
233,098
Mark Montross
Listing and Buyer Specialist
Catamount Realty Group

I really like this post. The two week price reduction idea is great. I would like to incorporate that one!

October 22, 2012 06:16 PM
Rainmaker
1,321,640
Charles Stallions
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.
Charles Stallions Real Estate Services

We have it in our contract to reduce every 30 days by 10% a month.

January 16, 2013 06:04 PM
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1,082,542

Bryan Robertson

Broker, Author, Speaker
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