What is a “Cost of Aging Penalty”?
It is safe to say that in most Northern New Jersey towns demand outpaces supply and properties that are “market ready” (or perfectly staged) are contracted in rapid speeds, often times with multiple offers. We call this a “sellers market”. In such markets, sellers tend to feel empowered and at times overconfident feeling they can do no wrong. In fact, that is not the case, this could be a very risky position for the seller to take if they believe they can price their home for whatever they want and get it.
Overpricing a home can be the SINGLE MOST detrimental decision a seller can make. It is critical to do extensive due diligence on comps coming from every possible angle- condition, location, cost per square foot, percentage differential from tax assessment and most important the buyer behavior pattern in your specific geographic location. In order to assess the buyer profile and behavior you must be in a relationship with an agent who has their pulse on the market, someone who is working with a pool of buyers showing several homes per week. This agent will understand intuitively what the buyer is looking for so you are better able to prepare for sale.
How do you know if you’ve overpriced your property?
If you didn’t have multiple competing offers the first week or don’t have an accepted contract in 3 weeks, from the date you’re listing was posted, then your home is priced above the market. Before we stepped into the decade of modern technology and quick access to streams of information the time-frame for properties being stagnant was 3-5 months. Based on the patterns of behavior for the past few years, the first two weeks are critical in your strategic planning and week three becomes the pivotal moment in which you can save the possible downturn in an unfavorable outcome, meaning; taking less for your home then you could have.
Here is a real example from last month:
Mr. & Mrs. Seller are relocating to another state for career purposes. They qualify for an additional bonus if we contract the home in 30 days from the hiring company.
Plan Of Action:
- Determine true “numerical” market value = $475,000 (this is the number we absolutely know will trigger an offer)
- Determine “hedge” value= $495,000 (this is the dream number for the seller)
- Actual game plan- List at $495,000 for two weeks if we don’t receive an offer we drop the price the third week to $475,000.
- Stage home- total investment $3,000
- Professional Photography
- Floor plans
- Schedule 4 Open House times back to back
There were over 70 showings the first two weeks with no offers. We dropped the price to $475,000 as we agreed and all of a sudden “BAM” there was a perception of value to the buyer community! We received 4 offers. We gave all buyers the opportunity to increase their offer, also known as final and best. We accepted and offer that ended up to be $2,000 over our original list price before we reduced it.
Moral Of The Story:
Don’t be chicken! You hired a Realtor for their expertise, you must trust that they know how to get you the best result. This is your biggest investment use a seasoned professional.
THE RISK IN BECOMING STAGNANT
Properties that are on the market for 30 plus days are scrutinized with a fine tooth comb this appears to alert buyers to question what could be wrong with them. Rather than assuming the seller might entertain a lower offer they tend to withdraw from the desire to even look at it. Most often, they will just wait for the price to drop. This unjustified viewpoint of being less desireable translates to a “cost of aging inventory penalty” (I made that term up, but you get the point) for the seller. The buyer will look to subconsciously be compensated to purchase a property that nobody else wanted (…within 30 days). Silly isn’t it? But you can chose to be smart and control the destiny of your outcome. The road has many paths, which will you take?