Why real estate price padding does not work in today's market
Many sellers are in denial about the current value of their home, particularly if they bought within the past five to six years. The market peaked in the summer of 2006, and home prices dropped significantly in most areas from 2007 through 2009.
Sellers often see no harm in asking a higher price -- one based on their needs or desires rather than what the market will bear. "We can always come down" is a common refrain. Letting your home sit on the market at a price that's too high can result in price reductions and a lower sale price, especially if the market is still declining.
Today's homebuyers are nervous, pragmatic and well educated about the market. Not only are buyers cost-conscious, fewer buyers can qualify for a mortgage than was the case in 2006 due to recent credit tightening. Many who bought in 2006 couldn't qualify for the same mortgage today. There is a smaller pool of motivated, financially qualified buyers than there was several years ago. These buyers have an edge in most markets.
Buyers want to know how long a listing has been on the market. If it has been on the market for some time, they wonder why it hasn't sold. Is there something wrong with it? A high price can signal that the seller isn't motivated. Buyers don't want to waste their time. Don't waste yours as a seller if you aren't serious about selling at current market price.
No one knows for sure when the housing market will turn around. Many economists think we've hit bottom or are close to it. Analysts also forecast that home prices will bump along the bottom for some time. They don't expect a quick rebound.
There isn't an urgency to buy before prices rise; buyers are taking their time to find the right long-term home. They are not overpaying. Even in low-inventory markets where multiple offers can occur, the price is usually not bid up radically, unless the listing was considerably underpriced.
Recent tax credits are an incentive to buy now for some buyers, and interest rates are low. Buyers' nervousness about the housing market has thawed recently. The combination of lower home prices and interest rates has made housing more affordable than it has been in years.
There is a risk that interest rates will increase to around 6 percent by year end. If so, this will affect the affordability equation and could have a downward influence on home prices, depending on the condition of the job market and the economy.
HOUSE HUNTING TIP: To take advantage of this window of opportunity to sell, your home needs to be priced competitively. There was a time when sellers padded their list price so that they'd have room to negotiate. That strategy doesn't work in this market. Your house needs to look great and be priced competitively so that buyers realize they have to jump before someone else does.
An analysis of data from the multiple listing service for Piedmont, Calif., properties listed in 2009 provides an insight into the importance of pricing right for the market. During 2009, the listings that didn't sell were listed on average 26 percent higher than the listings that sold.
The market is constantly changing. If you find after your home is on the market that it's not receiving the interest you'd anticipated, ask your agent for feedback from agents who showed the property. Find out if similar listings in the area have sold recently. Did buyers who looked at your home buy other listings instead? The market will tell you quickly if your home is priced too high.
THE CLOSING: Lower your price as soon as you discover it's too high so that you don't lose marketing momentum.