Rethinking the Listing Price
Price smarter, which can mean lower, to get a larger audience, more competition and a quicker sale
For generations, the way homes were priced on the market has remained unchanged. The seller, or seller’s broker, would attempt to estimate the market value of the home and tack on a little extra to give themselves some negotiating room. That figure would become the listing price of the house. Buyers would then try to determine how much less than the full price they could offer and still get the home. The asking price was generally the ceiling of the negotiation. The actual sales price would almost always be somewhat lower than the list price and it was unthinkable to pay more than what the seller was asking.
However, nationally, today is very different. In much of the country [outside of NYC, or at least Manhattan], the record-low supply of homes for sale coupled with very strong buyer demand is leading to a rise in bidding wars on many homes. Because of this, homes today often sell for more than the list price and in some cases, they sell for a lot more.
According to the Home Buyers and Sellers Generational Trends report just released by the National Association of Realtors (NAR), nationally 45% of buyers paid full price or more.
As buyers and sellers, even in NYC, it may be time to change the way we determine the asking price of a home.
As a buyer, in today’s market in many parts of the country, you likely can’t shop for a home with the old-school mentality of refusing to pay full price or more for a house. Because of the shortage of inventory of houses for sale, many homes are actually being offered in an auction-like atmosphere in which the highest bidder wins the home. In an actual auction, the seller of an item agrees to take the highest bid, and many sellers set a reserve price on the item they’re selling. A reserve price is the minimum amount a seller will accept as the winning bid.
In NYC, where inventory is higher than normal, and the market was severely affected by COVID and the related shutdown a year ago, buyers are conditioned to expect discounts. HOWEVER ... bidding wars are occurring for well-priced apartments.
Despite the higher than normal inventory, NYC sellers have the ability to make any market a seller’s market by pricing correctly. Sellers who come to market at an attractive price can drive a large amount of buyer interest and activity which creates increased demand for their homes, leading to, at least theoretically, ultimately a higher sales price, shorter time on market and greater optionality for the seller.
Sellers, even in NYC today, could find themselves pleasantly surprised with the results if they stop focusing on the asking price, and instead focus on what the sold price will be. By pricing accordingly, sellers can appeal to a wider range of buyers, ensuring more people view the home, have the opportunity to become emotionally invested in the space and enable buyers to compete against themselves, rather than one buyer competing against a seller. Remember, buyers tend to buy at the upper end of their budget, not the lower end. Therefore, a seller can price below a price threshold, breaking into a new category of buyers, who may decide to pay-up to buy an apartment of their dreams, that they may not have ever come across in their search had the home come on the market at a higher price.
While this strategy has proven to work in markets with low inventory, it may actually work even better in markets with higher inventory, as a seller can make their home stand-out and look like a comparatively great deal, ultimately shifting the leverage further from the buyer to the seller given the principle of scarcity.
Connect with your Elegran real estate professional to further discuss this approach to navigating today’s market.