Certain things must behave in certain ways. We have witnessed things as observers over time that have just become "the way things are," and real estate home sales have a few sets of these rules as well. Today we'll discuss the Four Irrefutable Rules of Home Pricing that are evident in any type of market.
Four Irrefutable Rules Of Home Pricing
- Sellers are the highest bidders on their own home - In any type of market, sellers have a tendency to ask too much for their property... until they get serious. When inventory stacks up, over-priced homes in the inventory end up confusing buyers, causing them to be even more cautious than normal. Typically, overpriced homes are shown very rarely and even if shown, no offer is presented. These Sellers think "Why won't somebody make an offer" yet they don't understand that their home does not compare well with other homes that are priced correctly and priced at the same amount as theirs.
- Serious Sellers Price Their Home To Sell - Perhaps the greatest task of the real estate broker in helping the homeowner is determining the Seller's motivation. Serious Sellers price their homes to sell. If a serious Seller is not priced correctly, they lower the price.
- Homes "under contract" tell us little - I always like to take a little peak at how many homes are "Pending" (meaning "under contract"), yet I also know that very little can be drawn from any one contract in particular. The fallout ratio (homes under contract where the contract never closes) is roughly 50% for Realtors and nearly 90% with For Sale By Owners!!! So, just because a Seller down the street who was asking $400,000 for the home received a contract on the house does not mean that it will actually close, nor does it mean it sold for $400,000.
- Homes that sold tell us where the market .... WAS - The average time it takes to get a home closed, after a contract is ratified, is 48 days. Considering that most Realtors and Appraisers look at comparable home sales (from the past 6 months) as their comparison to the subject property, most of this data is based upon a decision that was made somewhere between 2 months ago and 8 months ago. Think about it, if we look at a home sale from June, it probably went under contract in April, meaning 5 months ago. Is that really current information? Do you really think a buyer cares what was happening in the market in April when they go out to make a buying decision today? So all that "sold" data gives us is history.
Seller Home Pricing Clear In Actual Market Graph
Take a look at the graph below. You can see the four rules of home pricing at work in the Tallahassee real estate market.
Just as we demonstrated above the graph, the graph shows us the the lowest prices are the prices that made it to closing. Homes that are "under contract" (Pending) only show the price at which they were last offered, not necessarily the price at which the deal was struck. Of course, there is a good likelihood that many of these will not even make it to closing. The highest price on the graph is homes for sale, followed by homes that "Failed To Sell." This is an actual graph of current listings in the Tallahassee real estate market demonstrating that the Four Rules of Seller Home Pricing are very present in our current market.
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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.