The initial listing price of a property is one of the single most essential items in a successful real estate transaction, and it does not matter if the market is booming like the one we are now in or leaner times.
For the past five years, the Northeast Tennessee Association of REALTORS® Trends Report has cited record-level sales almost every month. That has altered the market balance. Homes in the $200,000 and below price range still account for most resales, but the market share for that price range has dropped from 76% of all sales to 68%. The $200,000 to $399,999 range accounted for 18% of all sales in 2015. That is the year when resales took off like a rocket. They accounted for 28% of all sales in the 12 months. When you talk about balanced market conditions, you look for 5 to 6 months of inventory. That did not exist in the area’s two prime sales ranges in February.
That is the market background. Here is the pricing dynamic to keep in mind.
Buyers have passed on many listings. They – and their agents – are vigilant. They watch listings like hawks. They are waiting for something priced right so they can get out in front of other buyers, but that does not mean they will engage in a bidding war. While there are examples of sales prices exceeding the list price, it is not the local norm. More buyers are walking away when they feel the price is too high. Well-priced homes go under contract in a matter of weeks – sometimes days.
So, where is that pricing sweet spot that triggers a fast-track deal?
There are several options, but one consideration focuses on a study done by Eli Beracha, Ph.D. Florida International University and Michael Seiler Ph.D. at the College of William & Mary. Their research looked at 1,000 buyers and a pool of more than 370,000 listings. According to reports on the study, researchers were able to determine the impact of ’rounded-pricing’ listings vs. ‘just-below pricing’ strategies.
Beracha was quoted by the Journal of Housing Research article, saying, “Our study suggests that by using the just below pricing strategy, sellers can price their home slightly higher without driving away potential buyers.” Seiler added, “As a result, they end up selling their house for more.”
So how does that work?
Beracha gave an example that goes something like this: buyers are more attracted to a property priced at $199,000 than one marketed at $200,000. The research suggests pricing at a price more attractive to buyers yields a selling price of about 2.5% to 3% higher when compared to the property priced using a rounded-listing strategy.
This strategy is not a guarantee. There is a rebuttal that says listings based on the rounded-price approach have lower discounts and a shorter time on the market because they are viewed by more buyers who do their internet home searches in rounded numbers.
There is, and will likely always be, disagreement because the best listing price strategy is an age-old debate among REALTORS®. Still, it is something to consider when buyer preference is a concern when the inventory is tight, and when there are willing but price-conscious buyers. This is especially true of the crop of first-time buyers.
The local market has posted nine straight years of annual gains. The past five years have been the strongest. The economy typically gets a little softer in the runup to a presidential election, and although the coronavirus has not shown up here, there is a building sense of concern. All of that makes strategic pricing even more important.
A local, professional REALTOR® can lay out all the home sales and pricing data in your market. Once you have the hard data, it is a matter of talking to your agent and developing a plan that matches your property.
NETAR is the voice for real estate in Northeast Tennessee, the largest trade association in Northeast Tennessee. It represents over 1,300 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. Pending sales, monthly Trends Reports, and the regional market analytics are available on the NETAR website at https://netar.us/voice-real-estate-northeast-tennessee.
2020 NETAR President