How to Price My Home: Why It's Important to Price Your Home From the Start (PART 2)

As promised last week, here’s part 2 of our series about why pricing your home correctly is pivotal in the success of getting it sold. Last week we talked about the effect that an incorrect price can have on your wallet on the sale price. This week, we’re shifting our focus and although it will also involve price, it more directly affects time.

So to start, let’s pick up where we left off with some numbers we established in the last post. On average in the 1st quarter a poorly priced home, that needed to have its priced reduced one or multiple times, got its sellers 75% of the original asking price, where homes that were priced right from the start, and never reduced their price, gave the sellers an average of 95.8% of list price. We also provided a graph that broke down the numbers based on price point and we were told was a bit difficult to read and comprehend, for that, I apologize and we’ve made an effort to revisit how we’re presenting you the numbers in this week’s charts.

Now that we’re back up to speed, let’s talk timing. In situations where an asking price is reduced, they don’t happen overnight. If you’re looking to sell your house and you reduce your asking price today, you’re not going to reduce it again tomorrow are you? Of course not, it’s not enough time to gauge if the reduction had its intended effect of attracting either new attention from buyers or recapturing the interest of previous potential buyers. That being said, it’s often weeks between price reductions, sometimes even months, and if you’re still not getting offers, all that time adds up.

 We’ve put together two graphs with the same data in different visual representations. As with last week, all charts or tables that are colored red indicate that properties went through one or more price reductions and those represented in yellow never reduced their price. That being said, let’s look at how inaccurate pricing affected how long a home was listed for.

So what do the numbers say? Homes that were appropriately priced in the first quarter of 2012 showed a median days on market of 34. In just over a month, these homes were sold. Compare that with the homes who went through one or more price reductions and it’s a different story. With a median of 211 days on the market, it took about 7 months to sell.Whether you prefer the bar graph or the table, either of our graphics here reflect the same numbers. Those numbers reflect the median number of days on market (DOM), meaning half the listings DOM was above this number and half were below, this is a true middle number.

In the opening I mentioned this also affected price. What’s the opportunity cost of an overpriced listing? That answer comes from number crunching. How much do you currently pay on your mortgage? Multiply that by 7. Are you in a condo or a town home? How much are your maintenance or HOA fees? Multiply that by 7. Add those together. Are your taxes included in your mortgage payment? If not, add 7 months of those to your total.

How do the numbers look? Not so great? Now factor that in with the numbers we talked about last week with how it affects your net sale price. I’m not a “mathlete” but that equation should look something like this:

(Inaccurate list price x .75) – (mortgage x 7) – (broker’s commission if you list with an agent) (maintenance fees if applicable x 7) – (monthly taxes if not included in mortgage x 7) = What you’ll clear when it’s all said and done.

All these numbers are averages and medians, and obviously there are exceptions to every rule, but the moral of the story is it’s an expensive endeavor to over-price your home, both in tangible dollar amounts and in intangible frustrations as more time goes by and your home doesn’t sell. And to cap it all off, in the long run over-pricing usually costs you more than it would have to price it according to its true value in today’s market. Whether it’s worth the risk of trying to squeeze that extra few dollars out of your home is up to you.