Home sellers don t> have it easy these days.
Many are finding that the only real tool they have to lure buyers is the asking price and it isn t providing much leverage.
Market conditions are making it especially tough for homeowners to offload their properties. Nearly a quarter of home listings on the market as of July 1 experienced at least one price reduction, a 9% increase from the previous month, according to real estate search site Trulia.com. The average price drop was 10% off the original listing price about the same from previous months.
In 22 of the 50 largest cities, 30% or more of homes for sale have had price cuts, higher than last month, which had 10 cities with that level of reductions, according to Trulia. Sellers in some areas are worse off than others: Minneapolis topped the list for the third consecutive month with 40% of its listings getting a price cut, while 33% of Phoenix s listings got chopped.
Overall, inventory has increased, while demand for homes has dropped off, says Ken Shuman, a spokesman for Trulia.com. We re starting to see sellers begin to panic again, he says. In a normal cycle, the summer is a busy season, but we re not seeing that happen. The tax credit, which expired at the end of April, pulled qualified home buyers forward.
Sellers in our area are definitely seeing the need to lower prices of their homes, says Cindy Shetterly, a real estate agent in northern Kentucky. With 75 to 100 homes being listed daily, the competition in her market has heated up, Shetterly says.
So how can home sellers avoid the trap of repeatedly lowering the asking price and dragging out the selling process? They should first start with a knowledgeable real estate agent who has experience in their neighborhood.
Here s what else to consider when selling.
Don t test the waters with a high price
This is tempting for many homeowners. But in a competitive market where values are falling, listing your home at a price you know to be unsupported with the assumption that buyers will be eager to negotiate isn t always a savvy move.
Cindy Stackhouse, president of the Virginia Association of Realtors, says sellers must consider the staleness factor. Say a new house comes on the market at $200,000. There s a comparable home in the same neighborhood with the same asking price, reduced from $260,000, but has been listed for many months. Buyers will get more excited by the new listing. They'll assume the owners are at the bottom of where they re willing to go on price, and will want to make an offer and possibly negotiate on the newly-listed property, she says.
The first two to four weeks are critical
Every real estate agent will tell you that it s critical for a seller who wants to retain leverage to price their home right from day one.
Knowing when and how much to reduce your asking price can t be converted to a formula. But many agents will look at time on the market and number of showings to determine if a reduction is appropriate.
Shetterly advises her homeowner clients that if they re seeing no action in the first two weeks, they should trim the asking price because showings drop off considerably after 30 days. Sellers need to realize that we re back to 2005 prices, she says, and if they bought anytime after that, to list it over what they paid for is unrealistic.
Try to capture the next group of buyers
If you decide to lower your asking price, be strategic. A $10,000 cut sounds like a lot, but it may not be enough to get the next group of buyers attention, which should be your goal.
If you started with a $500,000 list price, drop it to $450,000, says Shuman. You want to make sure you re dropping the price down to the next level of shoppers, he says. Slashing the price from $500,000 to $479,000 probably isn t going to attract many new buyers, he says.
This might be as good as it gets for a while
If circumstances dictate that you must sell your home, then favorable market or not you'll need to sell. But if you have some leeway, it might be better to wait out the market until you can sell at a higher price. However, many economists are predicting that home prices will remain weak well into 2012 partly because of the rash of foreclosures expected to hit the market so, holding off on selling might not be the right decision. A Barclays Capital report published last week forecasts home prices to fall another 7% by the second quarter of 2011 and then bounce around the bottom for the next several years.
Right now, prices are relatively stable, but they will drop, says Reid Pederson, a real estate broker at John Greene Realtor in Naperville, Ill. This is the new peak for prices, which means a year from now, sellers will wish they had sold at the current price today, he says.