Price Reductions

Remarkably, just two short months from now, the aisles of your local Wegmans will be filled with shopping carts bursting with succulent turkeys, decorative pumpkins, and aromatic apple pies. With the arrival of the holiday season, we say goodbye to the real estate year that has been and, we as agents, begin to focus on reclaiming our lives. The months of November and December are typically spent with family and friends, getting reacquainted with our loved ones while listening to hosts of angels singing about peace on earth.

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Yes. That all sounds wonderful – and it will be. Unfortunately, in the meantime, the fast arrival of the holiday season poses a tremendous challenge to those hoping to sell their home before the end of the year. Given the astonishingly short period of time that remains in this year's market, sellers intent on finding a buyer for their property need to focus on how, specifically, they are going to secure an offer. What strategies does one need to employ in order to transfer title before the conclusion of the year? More likely than not, the seller has done all that they need to do in order to prepare their home for market. And, if they’ve chosen the right agent, marketing strategies have been employed to drive prospective buyers to the homes that are available for sale. So, what's left?

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Unfortunately, the one quiver that remains in the arsenal of strategic options has to do with price reductions. Yes, we realize how painful this decision can be. However, holding one’s breathe while sitting on one’s hands, waiting for a buyer to come along and write an offer on your property that has been idly sitting on the market, collecting dust, probably isn’t the best strategic option. Here’s why…

First, let’s talk about sample rates. If one wants to determine who will be the next U.S. President, theoretically, he or she could ask every registered voter who it is that they intend to vote for, come Election Day. Despite that being nearly impossible, it is also the least efficient and intelligent option for determining outcomes. Instead, one could simply poll a sample of prospective enrolled voters. If a large enough sample is secured then more likely than not, you’ll have an accurate snapshot of who’s going to be the next U.S. President. In other words, you can extrapolate the data from your first sample of voters and determine, ultimately, what the entire electorate will be doing when they go to the polls.

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  • Likewise, in real estate, when you want to find out what it is that the buying public thinks about a home, it’s not necessary to ask each and every buyer that walks through, ad infinitum. Instead, you can simply rely on a sample rate of 20 prospective buyers. What it is that they say, or more accurately, however it is that they behave will remarkably forecast how it is that the next set of 20 buyers will react.

  • Another sample rate that we rely on has to do with Days on Market (DOM). Whatever it is that takes place in the first 30 days that a property is on the market for sale, you can be absolutely certain that the exact same response will play out in the ensuing 30 days. Stated another way, if during month one, buyers are reluctant to write an offer on your property, then the exact same outcome will play out in month two.
     
  • Two phenomena are at play here. The first, and most obvious is that, if buyers feel that a property is overpriced or in need of too much work (which amounts to the exact same thing given that both are related to money), they won’t write an offer, no matter how much time passes. However, the more insidious concern has to do with perception. Specifically, the longer that a property remains on the market for sale at the same list price, the more likely it is that buyers will perceive it as “damaged” or “stale”. At this point, buyers and their agents have a tendency to fill-in-the-blanks or craft stories (“Oh, that’s the property with difficult sellers…” or “That’s the home that must not be selling because of the smell of mold in the basement” …You get the point).

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For these reasons, it’s important that sellers behave in a manner that is reflective of what it is that the market is saying to them. This is the most important piece of advice to remember. And also the most difficult to swallow. Unfortunately, every 30 days that a property is on the market, sellers need to decide whether to

a) Improve the property so that it’s worth what it is that buyers are saying it is currently not

b) Rent the property (A really, really terrible idea for reasons that I will disclose in another blog…)

c) Take the property off the market

d) Reduce the price

Unfortunately, as a result of the rapid pace at which pages of the calendar are moving forward, I traditionally advise my clients not to wait a full 30 days during this time of year. A change in price is probably warranted after only 3 weeks on the market at a given price. By acknowledging reality and making the difficult decisions today, this will, almost always, result in more money in sellers’ pockets on the day of closing. The $5,000-$10,000 that you lose today is almost always less than the cost of carrying the house and making mortgage and utility payments for the next 6 months…