Going Once, Going Twice – Sold!

As the news reports, the real estate market continues strong. In fact, the greater Sacramento area is one of the hottest markets nationally. At a time when demand is high and inventory atypically low, realtors are often asked what is the best method for sellers in pricing their property?

Historically, agents have relied on comparatives to assist in pricing a home. But in this unprecedented market, this strategy doesn’t always work. Many sellers are listing low in the hopes of starting a bidding war. Others want to start high, fearful of leaving money on the table. In this case, sellers may need to reduce their price. A recent report from Zillow Group Consumer Housing Trends states that 60 percent of sellers change their price at least once. The key is to realize quickly that you have overpriced and make one big correction instead of a few pricing tweaks, especially as older listings are not as attractive to buyers.

We have seen the rise in bidding wars, especially as we recover from the impact of COVID-19 and people are on the move. But because of the lack of supply, many homes today often sell for more than the list price – sometimes a LOT more. According to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR):

“For every listing there are 5.1 offers. Half of the homes are being sold above list price.”

In fact, due to the low supply of houses for sale, many homes are now 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 are selling. A reserve price is the minimum amount a seller will accept as the winning bid. 

In today’s housing market, the asking price is often becoming the floor of negotiation rather than the ceiling. We can think of the list price of a home as its reserve price at an auction. It is the minimum the seller will accept in many cases.

That said, there are sellers who value terms as much as price. For example, they may be drawn to an offer which offers free rent back or where the buyer waives some or all contingencies. In other words, the terms of the contract can help sway the seller’s decision regarding which offer wins.

How long this strong market scenario will continue is difficult to predict. Many articles discuss how the current conditions are vastly different from 2008, when the bubble burst. For one, banks have been educated that they need more reserves and that they can no longer underwrite unsubstantiated mortgages. We will watch the interest rates with interest, to be sure.

As for setting a listing price, you need to work with an agent who is up to date on the market and local trends, and who has enough experience with pricing to strategize the best list price for your unique scenario.

 

Debbie Austin is a realtor associate with Keller Williams, Roseville and has been helping clients buy and sell property in the area for 17 years. If you have a specific real estate question you wish to see addressed, contact Debbie at debbieaustin@kw.com or debbieaustingroup.com.