Pricing for Today

Real estate prices in Fredericksburg, TX are being challenged.  Increasingly confident buyers are now asking for (and in most cases receiving) price reductions (and other concessions) in amounts not seen in this market for quite some time.  As we continue to slide into a recession (subprime fiasco, Wall Street woes, weak dollar, record oil prices, etc.) sellers of real estate face the hard question of how to price their property to sell in a (generally) downward trending market.

Past posts have touched on this subject yet it warrants a fresh look.  What are the risks of overpricing your property in market where 1) qualified buyers are scarce, 2) financing is difficult, 3) prices have stabilized and 4) the spread between the asking price and the sales price is increasing?

The most common scenarios agents face in listing presentations with sellers are:

1.        “Another agent said they’d listed for more.”  A sellers’ mission should be to select the best agent, not the best price.  A real estate agent has no control over the market, only the marketing plan.  Never select an agent based on price. 

2.       “We can always come down.”  This is true, but the reality is that a series of prolonged price reductions merely add to the important “days on market” factor.  What question does a buyer ask me at the front door of every home I show?  “How long has it been on the market?”  They ask that because if it's been on a long time the common perception is that they can buy it for under market or that something is wrong with it.  Either way, you’re losing time and (probably) money with this mind-set.

3.       “Couldn’t we try my price for a few weeks?”  It is well-known to agents that the majority of market activity occurs in the first two to three weeks on the market.  This is absolutely the worst time to overprice since this is when the best customers will see the property.

4.       “But we have made so many Improvements to it.”  Most improvements are made for enjoyment, not resale.  Another important point is that structures and improvements to it do not appreciate in value. It is the real estate—the ground beneath it that appreciates. Where is it said that you can buy an item, install it in your home, decorate it to your taste, use it for a few years then ask a new buyer to pay you for it? The question that determines the value of an improvement is; if the item were not there right now, how many buyers would add the same improvement and pay what you want to charge?

5.       “But we paid $xxx for it.”  I’ve addressed this in previous posts, but another way to look at this is that there is no relationship between cost and value. What you paid for something has nothing to do with what it's worth today. It’s all about the current market.  You may not have “overpaid” at the time but as conditions have changed, you may be surprised to learn that (by today’s standards) you did, in fact, “overpay”.  The converse is also true based on past market gains.  If you “paid right” and have enjoyed the recent price appreciation, a “relative re-adjustment” will still likely net you a nice gain.

6.       “They can always make an offer.”  While it is increasingly true that buyers are emboldened by their new-found negotiating power, the only way a qualified buyer can make an offer on your real estate is if they actually see it. The problem is, most buyers look up to their price range, peek a bit over, then focus only in their price range. By overpricing, you put your property into a price bracket where they won't look.

The buyers of Fredericksburg real estate are out there.  They are being smarter, more patient and more demanding.  As a seller (in a challenging market) you must be smarter, more patient and more demanding of your agent.  Remember, Experience Matters