Pricing is our hot topic today. We’ll take a look at the factors causing price reductions, what to do from a listing agent’s perspective as well as when you’re representing a buyer. We’ll dive into some price reduction scripts and give you the confidence you need to navigate this changing market.
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Let’s take a look at what’s happening to prices right now. (And NO, the market is not crashing, it’s just normalizing!)
Facts:
Nationwide, 1 in every 15 listings had a price reduction in the last 30 days. That’s about 6.5% of active listings in the country, however, some markets have seen 50% of active listings get a price reduction in the past 30 days.
The five metro areas with the highest percentage of listings with price cuts were Wenatchee-East Wenatchee, Washington (53%); Idaho Falls, Idaho (52%); Carson City, Nevada (52%); Austin-Round Rock-San Marcos, Texas (52%); and Waco, Texas (51%).
This is all happening at the same time that prices are still up by at least 4% this year, and are expected to end up averaging about 5% by year’s end. This figure shows you that we are normalizing, not crashing. We are still suffering from a lack of supply.
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In a ‘balanced’, or more ‘normal’ market, 30% of listings have at least one price reduction prior to selling.
Remember this: At $52 Trillion, The total value of homes in the US is up 49% since before the pandemic. 49%! So these price adjustments won’t be catastrophic to most sellers. We’re a very long way away from short sales, so don’t go thinking the sky is falling.
What should you do when you’re the listing agent? You can price it to sit, or you can price it to sell. The average mortgage payment on a $400,000 home is now over $3000/month with taxes and insurance. That’s nearly double what it was a year ago. Any buyer still looking is serious, motivated, qualified, and scarce!
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Pricing your listings accurately in the first place will save you from having to have price reduction conversations later. (Though we’ll give you price reduction scripts later this week and tons of them in Premier Coaching).
First, It’s important to STOP doing any (or all) of the following:
–Stop: Taking the last best comparable, adding 5 to 10%, and expecting to sell that listing quickly and for even more than the asking price. There are random examples of this but they are becoming few and far between. Stop rolling the dice and hoping for a bidding war.
–Stop: Just pricing it based on what the seller wants to get unless that number can be backed up by recent comparable sales. This is called ‘seller’s pricing’ and is often ‘aspirational pricing’, otherwise known as an unrealistic price.
–Stop: Using any comparables older than 90 days to justify your price.
Why must you get better at pricing immediately?
1). Demand is lower than it’s been in several years. Buyers are feeling the pinch of higher rates, which equal higher monthly payments as well as a larger downpayment coming out of their pocket. The net result of this is: that they’re more picky and may opt to just keep looking or keep waiting versus writing an offer on your listing(s).
2). New construction is popping up everywhere and builders offer incentives that most resale sellers can’t or won’t offer. The payment on a resale home for $400,000 will be more than on a new home for even $450,000 due to builder incentives. You can overcome this with a better price, and/or offering to buy down the buyer’s interest rate like the builders do.
As of last month, Newly built homes represented an elevated share of 31% of those available for sale, according to the National Association of Home Builders (NAHB). Additionally, nearly 16% of total home sales last quarter were new homes.
3). Resale Inventory has just increased by roughly 10% this quarter. This means buyers have more choices, thus they have more control of the transaction. This is very different than previous years. Listings are still selling for about 99% of the list price on average, but remember that stat is based on the FINAL list price, which may have happened after one or more reductions.
What if you get an offer less than the list price? (Oh no!!!)
1). Don’t assume that your sellers won’t negotiate, and don’t counsel them to say ‘no’ to reasonable requests. It’s much more likely in today’s market that a buyer will expect inspection items to be remedied and ask for the seller to contribute to closing costs. Don’t lose deals because you’re using a hot-sellers-market-mindset (or your seller is). If you have no other offers, you better keep the buyer happy, or they’re likely to walk away.
2). Always create a seller’s net sheet and discuss it with your homeowner. Chances are they’re still walking away with a big bundle of proceeds even if they have to accept a less-than-list price offer. When they focus on what they’re getting (the proceeds) versus what they’re ‘losing’ (money off the list price), they’ll likely decide to accept or at least counter the offer.
Buyer’s agents are asking: When is it okay to ask for seller’s concessions, including price, contribution to buyer’s closing costs, repairs, etc.?
1). Gather your facts and have a negotiation strategy. If the house is priced right based on recent comparables, has a ton of showings happening, and has only been on the market for a day, your strategy will be different than when you find a home that’s been on the market for 60 days or more, with slower showings and no competing offers.
2). It may be better to look in a lower price range or at a different type of home (condo/townhome) than to ask sellers to contribute to a rate buy down or other concessions. This depends greatly on how many choices your buyer has in their price range. If there’s lots of competition and longer days on the market, your buyer has more room to negotiate.
Bottom line? Sharpen your pricing skills immediately, assume buyers will continue to gain more control of the negotiation process and realize that listings are your golden ticket to success in the market!
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