The Misconceptions about Pricing Your Home in a Low Inventory Market

If there’s one word I’d use to describe the market right now it’d be funky. People are thinking they can ask whatever they want for their home because inventory is so tight and as a result, the good stuff is selling and the overpriced products are sitting around for a long, long time, creating a kind of real estate funk on the property that buyers can sniff out for miles around.

Buyers are savvy. They see everything. They smell everything. They’re not going to overpay on a home that isn’t worth it and even in this low-inventory market, the classic principles of real estate pricing and marketing still apply. It’s still about getting as many eyes as possible on the property. It’s still about strategic pricing that will create competition. Those key – and proven – tactics cannot be abandoned just because there are less homes for sale at the moment.

Some sellers think that with such a small supply, buyers will pay any price but what overpricing a home really does is make the likelihood of a price reduction far, far greater than it would be if the home was priced right. It’s why we’re seeing so many price reductions happening today. The few houses that are lingering on the market are there for one reason: Sellers have gotten too aggressive with their pricing. In this type of market, it’s more important than ever to have the correct price right out of the gate, especially with a limited buyer pool due to the rise in interest rates. (It’s also why you should work with an experienced real estate professional who can ascertain what the correct price should be.)

This idea especially applies to properties in the higher ranges. I know a home nearby that was listed for $15 million (worth, in my opinion about $10 or 11 million) and that home sat on the market so long it got reduced to under $10 million and ended up selling for $9.5 million. There’s a strong argument to be made that by overpricing, the sellers lost at least $1 million, and that’s in the extremely high ranges. Another home in the neighborhood hit the market for $2.8 million and sold for $2.3 million. Why? Well, I think it should’ve been priced at $2.495 million from the beginning. At $2.8 million out the gate, the sellers ultimately lost hundreds of thousands of dollars because the days on market got away from them.

Days on market is the biggest enemy of every seller. Let it slip away and it’s like a weed in your beautiful backyard garden. It’ll multiply and fester and take over your flowers until one day, you’re left with only half your award-winning hydrangea garden (or in the case of homes, a chunk of your asking price gone). Overprice a house and the weeds of days on market will slowly build up in your backyard garden, too.

When pricing a home, you have to look at the relevant, recent comps, not comps from a year ago when interest rates were lower and inventory was even tighter. You really have to dial down to the most immediate comps from the last few months in your neighborhood. Another factor impacting price? Location. Sellers tend to ignore detrimental elements like a house situated between busy streets or one next to an apartment building or close to the freeway. They think that doesn’t make a difference. Let me tell you, friends, it does. And even those homes can sell quickly when put on the market at the correct price. It doesn’t matter if the property is a teardown on a freeway off-ramp, price it right and the house will sell.

So, you might be reading all this and wondering why on earth we’re seeing so many overpriced homes if there’s overwhelming evidence that they will not only stay on the market longer but also (most likely) experience a price reduction?

There’s a phrase we use in the business – “buying the listing” – and plenty of agents (not the smart and skilled ones reading this LinkedIn newsletter, of course!) will just “buy a listing” to give a seller the price they want to hear. Then, when the home sits on the market, they’ll say: “Ah, I guess we started out too high. No problem! We can always lower it.”

Sure, you could lower it, but you’d have to do it quickly, like within-the-first-two-weeks quickly; wait two months to reduce the price and you’ll have a big problem on your hands.

Don’t get me wrong. If people really want to try a higher price, it’s OK but you can’t let the house sit at that high price for months on end without any movement. You’ll be penalizing yourself. If you drop the price after two weeks to a more reasonable number, it could actually be a smart tactic, throwing the property back up to the top of the search field. It can sometimes be a strategic marketing tool to adjust the price, but it’s not the preferred method of marketing. Here’s the catch: People will remember the first price the home came out at, and unless you build some kind of memory eraser like they have in the movies, you can’t wipe their memories of the original price.

What I prefer instead is what I call “action marketing” or “event pricing.” I try to create action on a home through pricing it slightly lower than you’d expect. You get people excited, you get more eyes on the property and you create more chances for multiple offers. If it’s worth more than what you priced it at, the home will automatically and immediately bid itself up. It’s why I tell people who think they can price a home too cheaply that it’s impossible – as long as they market the home properly.

Here’s an example: If you, the seller, want $2.8 million for a home, you can price it at $2.5 million and if it’s worth $2.8 million, it will happen right away. The difference between $2.5 million and $2.8 million is about 30% more eyes on your property from the very start.

Everyone always asks, “What’s the best season for selling? What’s the best time of year to list?”

And to that I always respond: “There is no bad time.”

This August is very busy when August is normally a little slower ,and the spring was slightly slower when spring is usually hopping with homes. The market is funky, remember? And it means the right time to sell your home is whenever it’s right for you.

The market today is immediate and requires going back to old-school basics for the best possible outcomes. I always say 99% of views for a home happen online, and if a home doesn’t look good in photos, you won’t get buyers coming through the front door – at any price! But if you get that magic trifecta of condition, price and exposure, you’re going to get the most for your house that the market will bear.

To sum up my thoughts on this current market: Sellers may think they can price their home however they want but buyers just aren’t buying it.

Andrew Manning • REALTOR® • Berkshire Hathaway HomeServices California Properties • DRE: 00941825 • 818-380-2147 •