More on pricing your home for sale – Buyers and the clearance rack.

Faded Jeans
Creative Commons License photo credit: lgkiii

Allow me to tell you a little story about denim jeans.

I live in a house with six “X” chromosomes. OK, we have a total of seven if you consider Steve, which we rarely do. The point is that with three women on board, we think a lot about clothes.

(Note: Lest you attempt to nail me on a technicality, like the fact that both daughters are now in college, let me assure you that my charge card bill suggests they are both quite resident in spirit.)

And we women-folk like our denim jeans – not the kind that Steve fancies, direct from the mail order catalogue or the ones commandeered from the display bin near the check-out line at Costco, but the designer variety. There’s one problem, though. We can’t justify the expense.

Now, given this little income/expense disconnect, we could easily just follow in Dad’s tracks and buy the brands lacking the requisite status symbols and the finer finishings (like those cute little rhinestones or the whimsical rear pocket stitching). And sometimes, in a pinch, we do just that. What we mostly do, though, is wait. We wait until they go on sale.

Sure, compromises are involved. By waiting  for the britches to hit the outlet store or the discount rack, having been replaced in the mother ship by the season’s new offerings (the ones that now sport a pocket three quarks smaller than their predecessors), we a little less cutting-edge than some. The point is, we would rather sacrifice a little instant gratification and wait for what we really want to navigate toward our budget, not the other way around. The point is, we are a lot like today’s home buyers.

From… today announced that price reductions for home listings currently on the market in the U.S. have increased for the third consecutive month to 26 percent and account for a total reduction of more than $29 billion nationwide.

In San Diego, it is reported that 23% of the active listings on 9/1/10 had been through the price-reduction wringer. And a review of the Sandicor MLS shows that 54% of the 125 active detached home listings this morning in Scripps Ranch have experienced a similar fate.

“Why should I reduce price?” I was asked recently. “Won’t the buyer just offer what they think it is worth? Shouldn’t we at least expect a low offer?”

Well, no. Buyers will generally wait for the home to go on sale. And if it’s priced too high, they often won’t even know it is available, because they will be off shopping in that other department where the prices are more in line with the rest of the market for that product and more compatible with their budget.

Of course, some patience is involved. Homes don’t sell in hours like they did in 2005. The average market time for detached homes sold in Scripps Ranch over the past 90 days was 48 days. But at some point, despite the best staging and photographs, despite the brochures, the skywriting and the free pony rides, if your home isn’t selling, you are going to have to bite the bullet. You’ve likely got a pricing issue.

That’s a tough pill to swallow, I know. Compare the average 48-day market time of sold homes to the average 79-day market time for detached homes currently offered for sale in Scripps Ranch. Many sellers are still having a tough time adapting to this market.

How will you know when you are finally priced right? That’s easy. Your home will sell. So, the bigger question is, what’s “right”?

According to the statistics (again looking at the 92131 Zip code because, well, that’s what I did), homes sell on average at 96% of their list price. This was true over the past 30-day period and over the past 90-day period. Going back six months, the number was 98%, but one could blame that on the tax credits (“one” being me). And, guess what? In 2005, the average sale price to list price ratio was… 96%.

In fact, the biggest discount off list price going back 30, 90 and 180 days in 92131 was 12%, and this includes all of those “smoking opportunities” that are short sales.

So, when your pricing gets within 4% of that sweet spot – true market value – you will likely start seeing offers. That doesn’t mean that aggressive preparation and marketing has no place. It does, because we are talking averages here. And because, like Steve versus the female contingent when it comes to buying jeans, every buyer is going to place different value in the same product when considering a home purchase.

There is always a range of market value for a given home, and all of the things your agent does (or doesn’t do) to position your product will help determine where in that range your offers fall. But, absent a price within striking distance of the range of value, your buyers will just wait for the clearance event.

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