January 21st, 2008 Categories: Working With Realtors
I had the idea for this article based on another article I read that suggested many buyers feel that price reductions on homes for sale often indicated a problem with the home. In my quest to educate buyers and sellers in the Pensacola real estate market, I wanted to clarify this topic for my readers.
I’ll start by defining a price reduction. I am not referring to a seller who accepts an offer on a home that is lower than the asking price. This is common in most real estate transactions, especially in the buyer’s market we are experiencing now. I am referring to sellers who list their home at a certain price, and then reduce that asking price during the time the home is on the market.
Today, many sellers have homes listed that have been on the market for six months or longer. Most of these homes have had price reductions since they were put on the market.
If you are a buyer looking for a home, a real estate agent can give you information on the pricing history of the home. If you find a home that has been reduced in price since being listed, there are generally 2 main reasons that cause sellers to reduce the price:
1. The Home was overpriced when listed. This is the most common reason for reducing the asking price of a home. After the hot real estate market of the past several years, many sellers are not realistic about what their home is worth in today’s market. Many Realtors refer to overpriced homes as “homes that are not on the market”. These homes will get few, if any, showings, and they will languish on the market. They will garner the reputation of an overpriced listing and will generally be avoided by Realtors looking to get their clients a good value.
2. A Major Defect was discovered with the home. Sometimes a home will go under contract, but a home inspection will uncover an unknown defect. This situation will effectively force the owner to reduce the price of the home low enough that a buyer will be willing to purchase it with the defect. This is far less common than the first reason.
I had a buyer tell me that they felt they got a very good deal on a home because it was originally priced at $195K, but the owner had reduced the price to $150K. Sorry happy buyer, but this type of scenario generally indicates that an owner had to reduce the price because it was too high to begin with. It is very likely the buyer got the house at fair market value. Unfortunately, I think she was feeling a lot better about her purchase before she talked to me.
I was curious as to what percentage of homes on the Pensacola Florida market had price reductions since being listed. I do not know of any tool in the MLS that would give me such data, so I had to take an educated guess approach. Note that the results of my market survey have no statistical validity whatsoever. I pulled up homes that had been on the market for over 4 months in different areas of Pensacola, and I randomly selected homes, looking at the history of the home while on the market. My unscientific results were at the very least consistently convincing.
East Hill – 70% of homes checked had price reductions
Scenic Hills – 70% of homes surveyed had price reductions
Pensacola Beach – 90% of the condos clicked had price reductions
Myrtle Grove – 90% of the homes selected had price reductions
The homes that did not have price reductions probably need to be reduced. What this survey shows is that sellers often tend to be unrealistic about the price they can get for their homes in this market. The hot market is gone. So how does a seller price their home to sell? Simple, listen to your real estate agent. One of the biggest complaints among agents in this market is overpriced listings. Sellers who will take the advice of their agents and price their homes competitively to begin with will in many cases end up getting more for their home than if they priced it too high in the early stages of the listing.
In this buyer’s market, sometimes it is hard to get to the right price for a home, even for an experienced agent. My best advice is to find a good real estate agent, and ask that agent to show you prices of similar homes sold, and prices of homes for sale in your area. Take a tour of some homes that are considered your competition. Prep your home to sell. Work with a good agent who will do the research for you, show you the competition, and help you price your house right the first time.
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