More and more people in the general public are coming to the awareness that real estate is in a recession. Since most homeowners today have never experienced a long term, real, deep recession; it can be very troubling when considering how to sell your home. Pricing your home to sell during a recession is much different than pricing your home to sell during an upward trending market. In the past, a homeowner could simply put a price on a home, and could reasonably expect to get at least ONE offer; probably more. In today’s market however, that strategy simply will not work.
In today’s post, I would like to share with you some of the tactics, and rationales behind how to price your home to sell during a recession. These are some of the “hard won” lessons that I have had to learn, and help my clients and customers understand in the 26 years that I have been in the real estate industry. I hope they are helpful!
Why Pricing Your Home Correctly Matters
Let’s begin with the most obvious issue. Why is it so important that you price your home to sell correctly during a recession? Primarily because there are so few actual buyers that are available in the marketplace. You see, currently, the interest rate for a 30 year mortgage for a home with someone with a 698 credit score is roughly 7%. This number was 5% a year ago, and 3% the year before that. This is important because the interest rate affects the amount that a buyer can pay for your home. As the interest rates rise, the fewer buyers are available to buy your home.
As there are fewer ready, willing, and able home buyers for the market, there are more and more homes coming on the market to choose from. In a upwardly trending market (like we have been experiencing for the past several years) pricing becomes less important because there are more buyers than there are homes available to sell. In a stabilizing, or even downward trending market, pricing becomes critical because “Supply outweighs Demand.”
Pricing Is More Than A Number
When discussing an appropriate price for their home, many of my customers and clients think of pricing in similar terms as they might for selling a car or selling gasoline. Maybe you’ve thought it yourself, it is a common thought. The thought that “Instead of making the car $20,000; I’ll list it for sale as $19,995”. When pricing a home, land, or real estate of any kind, this is exactly the wrong approach to take.
Here’s why.
First, (and probably most importantly) you aren’t kidding anyone. Everyone knows that when you say $349,900… you really mean $350,000. So let’s just begin by being honest with everyone okay? With an eye towards honesty, let us turn towards what the “asking price” is really all about when selling real estate.
When you are pricing your home to sell during a recession, or any other time; you want to use your asking price as the “Conversation Starter”. In this case, the “conversation” you are looking for is an actual offer for your home. When you are pricing your home during a recession, and there are fewer buyers to begin with, you want to get an offer as quickly as possible. Without the conversation being started, you will never sell your home.
So how does one go about pricing in such a way to “start a conversation?” It begins by pricing your home the way real home buyers actually look for homes. Real home buyers (the kind with real money) hate wasting time. When they look for homes, they generally look on the Multiple Listing Service or any of the thousands of websites that provide information from MLS. As they search on MLS, the default search category on 99.9999999% of ALL pricing is done in terms of $10,000. Meaning that, if you don’t get to manually input the price yourself, the drop down category that the search engine will supply will be ending in “,000” not “,995” or “,900”.
What does this mean? Well, if you price your home at $349,900; it will be seen by only those who are clicking to at least $350,000. However, if you priced your home just $100 MORE, at $350,000… on that same search, it would be seen from those looking from $340,000 to $350,000 as well as those who are searching for $350,000 and above.
What is the end result of keeping your asking price with an even number instead of odd?? MORE visibility on whatever platform it is found upon.
More visibility means more potential buyers. More potential buyers means more potential offers. More offers means higher prices.
It’s as simple as that.
Leave Room For Negotiating?
Another common misconception while pricing your home to sell during a recession is “leaving room for negotiation.” Many homeowners are concerned that if they “price too low” they won’t have enough “room to negotiate.”
Let me dispel that myth as quickly as the morning mist! In the real estate environment that you are heading into, you do not have the luxury of “leaving room for negotiation.” If you haven’t already seen the plethora of “For Sale” and “Open House” signs all around you; keep your eyes open because they are coming. The more homes that are on the market, and the fewer actual motivated buyers there are, means that pricing accurately to generate an offer becomes of paramount importance.
I’d rather have ten bad offers to reject than miss the one good one I can negotiate with.
Mike Ferry
At the end of the day, you as the Home Seller, have the ultimate control over what happens with the property. You have the “power of the pen.” However, without any offers at all, you cannot negotiate a sale for yourself. As a long time homeowner, and multiple home seller myself, I would rather have ten bad offers to reject than miss the one good one I can negotiate with.
Getting your home prepared, and on the market is only the beginning of the battle. The hard part begins when you actually receive offers that you negotiate on, and then close. Without any offers at all, you won’t go anywhere.
90% Of Marketing Is PRICE
“bUt WHat AbOut MuH MaRkeTinG” I can hear some people say.
I hate to be so cruel, but the hard truth is no amount of marketing will sell an overpriced home.
You can take full page advertisements on the Washington Post, run magazine ads in every newstand in the United States… You could even get “The Skywriters” to run banners through your town’s airspace telling the public about your home…
However… If you are lucky enough to find a buyer who would be interested in it, and found it through the advertising that you have done, they will still consult their local real estate agent, or MLS, or Zillow, or any other of the dozen ways to investigate your home. It is only reasonable to assume that they will want to know if your price is in line with the local area.
If your price is too high for the area, “looking at your home” stops immediately. Even if they have the money to afford what you are asking for your home, if it is out of what would be considered “normal” for that area they will immediately begin making assumptions. They often will think that you aren’t serious, and that they shouldn’t even bother wasting their time.
I know you find this hard to believe… and you might even think I am being “too rough” by telling it to you straight like this. However, after 26 years, hundreds of Sellers and Buyers… this is the behavior I have observed firsthand.
By pricing your home aggressively and correctly the first time, you will get the best buyers coming to your home first. More importantly, because of value, they will stay.
What Really Sells A Home During A Recession
So what actually works when pricing your home to sell during a recession? I always give this advice.. When determining a price for your home, ask yourself this question. “What price could I SLEEP with?” Not “What Price could I be HAPPY with.” The difference is subtle, but important.
When you are trying to sell your home in a declining market, you should not be concerned with “how much money did I make?” The reason why is clear. For the past 2-3 years, you have heard countless tales of rocketing prices, and equity rising through the roof. The problem is, that equity only counts when someone buys your home at that price. If nobody is buying at that price, it isn’t worth that price.
Again.. more hard truth, but if you really are serious about pricing your home to sell during a recession, you must realize that you do not have a home… you have a product to sell. That product is just like the thousands of other homes for sale.. Oh sure, it has special memories, and nice amenities that you have enjoyed. However, those “features and benefits” that you have enjoyed all these years seldom have the same value to the next owner.
In a future article, we will discuss what, if any repairs are needed when selling your home during a recession. Until next time, stay safe, and feel free to reach out to me if you have any specific questions!