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Empirical Proof That A Home Seller's Initial Asking Price Matters

If I’ve heard it once, I have heard it a thousand times from home sellers … “Why can’t we just start at this (higher price) and reduce it later if we’re not getting any offers?” After all, if somebody is not in a hurry to sell a home, what can it hurt to try to get a higher initial asking price than current market conditions indicate for a home’s value?

I have been advising home seller’s in this depreciating real estate market to either wait 5 to 10 years to sell, or sell as fast as possible to get the highest price for their homes. But many home seller’s are hurting for cash or equity and they are hanging on to the hope that they can beat the market, so today I went in search of empirical proof that the initial asking price is so very critical for today’s home seller.

Note: If you want to see how to get the top dollar for your home while selling as fast as possible, take a moment to view our progressive home selling plan which utilizes active, passive, and progressive home marketing systems.

I decided to track two key real estate statistics. First, the average value homes sold, measured in price per square feet. This is a good way to get the general trend for value movement in a housing market. While it is no way to price a singular home, it does work well to approximate real estate appreciation (depreciation) on the macro level.

Secondly, I measured the ratio between the initial asking price for a home and its final sales price. The results of this measurement are best-case-scenario, as many listings fail to sell at one price and are re-listed at a lower price. My measurements only show the difference between the initial asking price and final sales price for the listing period in which the home was sold.

Ratio Of Home Sales Price To Initial Asking Price

The first graph measures the ratio between the final sales price of a home to its initial asking price during that same listing period. During the peak of the booming real estate market, homes were selling only 2% lower than the seller’s original asking price. But as the market hit its peak and then began to fall, this discount increased dramatically.

Home Sellers Asking Price

Real Estate Depreciation Graph

The second real estate graph measures the average price per square foot of homes sold in the Tallahassee real estate market. The green line is a one-year trend of the average value of homes sold, and you can see that we have returned to levels last seen in 2004.

Real Estate Depreciation

The Importance Of A Home Seller’s Initial Asking Price

When we combine the first two graphs, I believe we see something important for anybody who is trying to sell a home. As home values began to fall, seller expectations did not fall with them. The divide between the original “initial asking price” and the final sale is four times what is was just five years ago. And while this might not be obvious to somebody who hasn’t yet thought it through, this is clear empirical proof that the initial asking price for a home matters in a declining market!

Home Sellers Initial Asking Price

Real World Example Of Bad Initial Asking Price

So maybe you are contemplating selling your home, and you hate the thought of leaving any money on the table. You have several months before you need to move, so why not try a little higher price? Surely the worst thing that will happen is that it won’t sell and you will have to lower the price, right?

The key to remember is that home values are dropping. If you plan on keeping your home for more than five years, this might not have much effect on you. I believe the long (and I mean long) term trend for housing is very good, as our population is continuing to grow. But if you need to sell your home in the next five years, you need to understand that time is money. Home values have been falling by about 1/2% each month, so the longer you try an unrealistic price, the less money that you will realize from the sale.

Here’s a real world example of a home seller who left $70,000 on the table because of the desire to get a higher price than the market indicated the home was worth.

Bad Initial Asking Price On A Home

In the graph above, a home seller started their asking price well above market values. As you can see, it took this seller nearly 3 1/2 years to sell the home. In that period of time, the seller reduced the asking price several times, but each price reduction remained above the market. Had the home seller utilized a smarter asking price on day 1, the home would have sold right away and the seller would have netted $70,000 more than what was received at the closing of the home.

When a home seller starts high and reduces the asking price of a home in a declining market, we refer to this as “chasing the market.” Prices fall as fast as the seller reduces the asking price, so effectively the seller remains above the market the entire time. Typically, this type of home seller either gives up or ends up so frustrated that they sell below the market.

I hope this post has provided you some insight into the importance of the initial asking price of a home. When I work with home sellers, I do a very in-depth analysis of supply and demand, specific to the home that I am evaluating. This allows me to provide very clear and accurate guidance for the home seller, and it is why we have had such great success in selling homes in a market that has a 60% home sellers’ failure rate.

If you would like to know more about how I can help you sell a home, just follow this link to drop me a note, and I look forward to helping you determine the right initial asking price for your home and move in the most difficult housing market of the past 20+ years.


Joe Manausa Real Estate is a brokerage company headquartered in Tallahassee, Florida. Its unique business model provides specialists to both home sellers and home buyers, and the results speak for themselves. JMRE has significantly more 5-star reviews on google than any other local competitor. Joe Manausa Real Estate is a leader in internet marketing and utilizes search engine optimization, email marketing, social media and data analytics to get their clients’ home sold faster and for more money than any other Tallahassee brokerage firm. For more information, visit www.manausa.com or call us at (850) 366-8917.

     

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