Tight inventory puts pressure on listing price strategy

Rick Chantry 

There are myriad considerations about putting a property on the market this year, but one stands above the rest. It focuses on how strategic pricing plays a critical role during the first days after a listing goes public. 

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We’ve seen record-level sales and price increases in the NE Tenn. – SW Va. market for the past two years. During the past five years, increased sales volume has absorbed the excess inventory from the Great Recession. And there’s still more demand than inventory. The inventory situation will likely improve a little later this year, but it is also likely much of that will come after the spring buying and selling season.  

With that in mind, here’s the dynamic to keep in mind in an era of rising mortgage rates and price push-back from some buyers.  

Buyers who haven’t committed have seen and passed on many – if not most – listings. They – and their agents – are vigilant about watching new listings and waiting for something that’s priced right. But that doesn’t mean they’ll engage in a bidding war like many did last year. While examples of sales prices exceeding the list price are expected on some properties there also probably won’t be as many as last year.  

So where is that pricing sweet spot that triggers a fast-track deal? 

There are variables, but typically it’s somewhere between the average listing price and the average sales price of comparable properties. “Somewhere” is the key question.  

One consideration focuses on research by Eli Beracha at Florida International University and Michael Seiler at the College of William & Mary. Their goal was to take some of the guesswork out of pricing. It looked at 1,000 buyers and a pool of more than 370,000 listings. From that research, they determined the impact of ’rounded-pricing’ listings vs. ‘just-below pricing’ strategies.  

Beracha was quoted in a 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 this example: Buyers are more attracted to a property priced at $199,000 than one marketed at $200,000. The research suggests pricing that is more attractive to buyers yields a selling price about 2.5% to 3% higher when compared to the property priced using a rounded-listing strategy. 

This strategy isn’t a guarantee, and there’s a rebuttal that says listings based on the rounded-price strategy have lower discounts and a shorter time on the market. 

Obviously, there’s disagreement because the best listing price technique is an age-old debate among real estate professionals. Still, it’s something to consider when the inventory is tight, and buyers are increasingly price-conscious. This is especially true of first-time buyers.  

This year should continue as a strong sellers’ market, but with buyers who are not as competitive as last year.  

The last two years saw double-digit price increases. Prices are expected to continue increasing, but at a slower pace. That makes strategic pricing an important consideration.  

Your Realtor® can lay out all the data from sales of homes in your neighborhood and community. That’s a starting point. Once you have the latest numbers, it’s a matter of developing a marketing plan that matches your property.  

NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the  Northeast Tennessee, Southwest Virginia region representing over 1,500 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries.   

NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,600+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us