Optimistic Pricing Doesn't Work: Here's How to Price Your Home to Sell
Data shows that optimistic pricing by sellers followed by price cuts is an ineffective selling strategy.
StreetEasy recently released an article trying to demonstrate the impact (or lack thereof) of price cuts or price drops on a listing. As many people have heard and seen from me in the past, I do not put a huge amount of stock into StreetEasy for a number of reasons.
But one thing they have going for themselves is access to consumer data. They can see which buyers are looking at what and what sellers are doing with their homes.
Based on that data, here are 4 key points I drew from the article as it may relate to you as a buyer or seller:
1. Price cuts are up
Price cuts on listings are up to 33% in 2019 (thus far) which is up from 20% in 2014 . Sellers slashed a record $3.2 billion from asking prices of all homes on StreetEasy in 2018, roughly 10% of their total value.
2. Price cuts aren’t attracting new buyer interest
Despite these price cuts, the drops are often too small and too late in the sales process to attract new buyer interest. StreetEasy confirms that consumer use on their site shows that only a slight number of consumers are more likely to save a listing after a price cut (around 54%). But that additional interest often meant only one or two new saves, which pales in comparison to what the typical home needs to find a buyer. For context, homes listed in 2018 that sold had a median of 49 saves during their first 12 weeks on the market. See the graph below for a more detailed breakdown of the change in buyer interest following price cuts.
3. Price cuts are too small
Despite a sluggish sales market, NYC sellers still appear reluctant to make deeper cuts than in years past. The average price cut has hovered at around 6%, but of those listings cut, the majority ultimately sold closer to 10% off the asking. This proves that most of the price cuts made are too small to move the needle to generate new buyers.
4. Buyers view price drops as an opening to a bid negotiation
The main thing price cuts indicate is an opportunity to negotiate. Of all homes listed on StreetEasy from 2014 to 2018 that received a price cut and eventually sold, four out of five sold for below their final asking price. Therefore, for sellers, the proliferation of price cuts and their impact on the buyer psychology reinforces pricing right from the outset.
In sum, the rise in price cuts illustrates that leverage has moved to the buyers in NYC.
Any buyers observing these price cuts should absolutely take advantage of the rare combination of prices on the decline paired with declining interest rates. It’s an unprecedented time that should be viewed as an opportunity.
For sellers, this really demonstrates the challenge in holding out hope for ambitious pricing for too long. The longer a home sits, the more likely it is to sell below ask and the harder it may be to find a buyer all together. If you don’t attract a buyer after a few weeks, it usually indicates that pricing is off. Thus, price right from day one if you can, and if you can’t, offer a price cut that will truly get buyers’ attention.