Why Are So Many Sellers Lowering Their List Prices?
Summer 2022 saw a shift in buyer behavior, brought on by sharply increasing mortgage interest rates. We had started the year about 3.5% and by late summer, rates had more than doubled. The frenzy to jump into a multiple offer scrum and make above list price bids with no contingencies all but came to a halt. Multiple offers were still seen on homes that took the time to create buyer enthusiasm, but of the entire summer’s worth of multiple offers I encountered with sellers, no buyer was willing to give up home inspection contingencies or finance and appraisal contingencies. Most buyers felt a strong offer was list price. And seller subsidy was becoming a normal request.
As a full-time real estate agent, the shift in buyer behavior has been palpable. Obviously, I can’t speak to the advice sellers I don’t represent are getting, but my sellers are given an in depth look at what has sold, what they are competing with, any shift in the tides of the market and are given advice about where to price. They are also tracking competing listings and overall market activity to judge whether or not what they are experiencing is on par with competing listings.
Just because buyer behavior has changed with rising mortgage interest rates doesn’t mean buyers suddenly have gobs of homes to choose from. They are able to visit multiple homes and not have to make an immediate decision. Inventory to this point is still not meeting demand, hence we remain in a seller’s market. Unfortunately, to some sellers that had watched their friends, family or neighbors sell during the feeding frenzy that was 2020, 2021 and even early 2022, they equated a seller favored market to that level of frenzy. That leads to three main factors for list price reductions.
PRICING TOO HIGH FROM THE START
From what I can observe in the market, and feather in with what I watched some of my sellers struggle with, sellers were caught off guard and didn’t want to hear that their home wasn’t instantly worth more than the last home in their neighborhood that sold. Therefore, they listed even higher than that most recent sold price. When the market didn’t gobble them up right away, they were stunned. And when some even got list price offers, but included seller subsidy, they rejected them thinking the seller’s market must have more to offer.
Overshooting on list price is a problem a lot of sellers seemed to have faced in the summer and even into the fall. Changing buyer behavior does not mean you still price high and give yourself negotiating room. Price right and get the job done. As days on the market tick by, buyer offers get less and less impressive, assuming that the seller has been over priced. Sellers were forced with lowering list prices to what were more reasonable list prices and would have been appropriate prices at the outset. Some even ended up listing lower than offers they received at the outset. Those were the sellers trapped in the thinking that it was their turn for over list price offers and seller favored terms. Any offer outside of that was insulting.
UNDER IMPROVING A HOME AND RELYING ON MARKET DEMAND
To say a home is under improved for what the sellers are asking is another way of stating it is over priced. In the 2020 and 2021 buyer frenzy, many sellers relied solely on market conditions rather than primping their home for market. The insane level of buyer demand gobbled those homes up with multiple offers, reinforcing to those sellers that they didn’t need to do any preparation, their home would sell regardless. True. Those homes sold. However, there were plenty of examples of sellers who left money on the table with this mindset. Multiple offers always level at market value. Improved homes that peak buyer enthusiasm always see the highest sale prices, even in that buyer frenzy from which we are still experiencing a hangover.
Now that we are in a more typical seller favored market, listing preparation is even more important than it had been. Skipping it and relying on the too few homes for too many buyers to bring top dollar is a lost cause that is resulting in some price reductions were are seeing.
REACTING TO TOO MANY DAYS ON THE MARKET
Days on market has been freaking out a lot of sellers, not to mention their agents. When homes that used to sell in a matter of four or five days were still on the market two and three weeks later, panic set in. Many listing agents working in the market were licensed in years where they have only experienced extreme seller market conditions. Two weeks on the market to them meant it was a buyer’s market. If they represented buyers, they wrote offers reflecting that. If they represented sellers, they were ill prepared to handle negotiating on a seller’s behalf.
Having lived through the housing crash post 2008, I can assure you that two weeks on the market is not a long time. Neither is a month. Try being on the market for six months with no offers. That, my friends is a buyer’s market.
Sellers should be informed of what average days on market for homes like theirs is at the outset of their listing and kept abreast of what is selling before them, or if homes are coming on the market priced below them with more to offer. Many listings in the current seller favored market are going to measured in weeks, not days. When is it time to lower to the price? When other homes like yours at a lower price are being chosen or with more to offer. If nothing is moving, it is the market and you could do yourself a disservice by lowering the price too soon. On the contrary, you don’t want to sit around with a bad price for too many days on market because at some point, buyers and their agents wonder what is wrong with the home. That’s why it is important to know expected marketing times going in after a look at current comps.
Our real estate market is a living, breathing thing that changes. The most important thing a seller can do for themselves is hire a full-time, professional, local agent that can help them through the process.
The opinions expressed in this blog are those of Chris Ann Cleland, not Long & Foster.