How does 1% per month grab you?
I read an interesting post recently from fellow real estate blogger, Mark Eibner, from Colorado. Mark runs the Real Estate Zealot blog and recently analyzed the Metro Denver market to determine the correlation between Days on Market (DOM) and Sold/List price ratio. The numbers were striking (read).
So I decided to perform the same analysis for the Reno/Sparks real estate market. I looked at Solds during the first half of 2007. 2,273 homes (excluding manufactured) sold in the Reno-Sparks market area during that time. Though my findings are not as dramatic as Mark’s, a similar trend is observed. Namely, the longer it takes one’s house to sell, the less the property will sell for. [Is that last statement intuitive? Perhaps, but check it out…]
| Days on Market | # of Solds | % of Solds | Median Price | Sold price ? ($ amount) | Sold Price ? |
|---|---|---|---|---|---|
| 0 – 40 | 276 | 12.1% | $289,900 | $11,563 | 3.2% |
| 41 – 80 | 632 | 27.8% | $309,000 | $12,092 | 3.4% |
| 81 – 120 | 404 | 17.8% | $299,900 | $14,362 | 4.0% |
| 121 – 160 | 277 | 12.2% | $295,800 | $14,681 | 4.1% |
| 161 – 200 | 258 | 11.4% | $309,900 | $18,961 | 5.1% |
| 201 – 240 | 132 | 5.8% | $314,999 | $32,049 | 7.2% |
| 241 – 280 | 109 | 4.8% | $334,000 | $30,753 | 7.1% |
| 281 – 320 | 90 | 4.0% | $338,383 | $38,994 | 9.8% |
| 321 – 360 | 48 | 2.1% | $347,494 | $54,081 | 11.8% |
| 361 – 400 | 23 | 1.0% | $319,900 | $40,533 | 7.8% |
| 99% |
Using a home priced at Reno’s current median home price (~$300,000) as an example, if the home sold within 40 days, the sold price would be $290,400. If it took three months to sell the home, the final sales price would be $288,000. And if a year passed before the home sold, the sold price would be $264,600. …for a cost of $35,400. This equates to almost $3,000 a month.
Another way to look at it is the cost is equivalent to 1% (of asking price) every month. In this Buyers market I often advise my Sellers to price their homes at 1% below the nearest recent sold comp. In this way we’re ahead of the pricing curve.
So often I see other Sellers price their properties higher than the comparable Solds in a gamble to “try it out for month or two” or “to test the waters”. When the house does not sell, they then begin a long and costly series of price reductions. We call that “chasing the market.” Ultimately, they would have been better off (house sold quicker and for more money) if they would have priced appropriately to begin with.
derrick
Would it be fair to also blame some of the realtors for not “helping” the seller price the property right the first time? It looks as if many sellers and realtors alike are both In denial..
If a realtor knows the seller is pricing the property WELL above comparables and the chance of the home actually selling is slim to none, then why take the listing? greed?
Josh
This seems like faulty logic – here’s why…
I postulate that the reason that homes stay on the market longer is due to them being overpriced to start with, therefore while it may take longer to sell, the sold price would be in fact equal to those that sell through early in the listing lifecycle.
Your example at the end uses a median – what would be more telling is what is the median of homes that sell through 0-40 and median of homes selling through40+ etc. Even this may be difficult data to interpret.
Josh
Pablo
I find the logic in this article completely faulty (or circular). It is totally obvious that houses that spend more time on the market are (eventually) going to sell for far less than the original listed price, but so what?. I could have told you that without even looking at your data. It’s obvious that if a house sells in a week, there’s no time/need to reduce the price and as the house stays on the market for longer, the pressure increases on the owner to reduce the price, so your “correlation” really contains very little information. Incidentally, you might also ask how much money people “lose” by selling their house too fast. If you want to do a proper analysis, you need more information. For example, what was the “appraised” value of the house, in addition to what the person listed it for, and what it eventually sold for, and how long it was on the market. It is entirely possible that someone who takes a year to sell a house and sells it for $40K less than he originally listed it for, still made more money than he would have if he had sold it in a week for the money he listed it for. Say the house was worth $300K, he listed it for $400K and sold it for $360K. If he had listed it for $100K, no doubt he would have got what he listed it for and sold it in a second, but he would have been very foolish. I do, however, realise that for realtors, there is a point of “diminishing returns” for a house, and it’s not worth it to THEM to spend a year to sell a house, so that the owner can make $5000 more, because all the extra time and effort is not worth a few hundred extra bucks. I suspect this is closer to the true reason why realtors are so interested in pricing the house “right”.
P
MikeZ
I have a friend at work who’s new hobby is lowballing. He says he starts out approx. 20% below list and then rebids every 30 days, 2%-3% lower.
I’m sure he’s having an effect on the psyche of the sellers.
Guy Johnson
Thanks for your comments, everyone.
Josh, per your suggestion I have added the median sold price for the various DOMs to the table. As expected the median sold prices are fairly close to the overall median price ($300,000) for all of Reno/Sparks.
Pablo, I submit that market forces would prevail. Using the numbers in your example, if a Seller listed his $300K house at $400K, then he would be unable to sell it until he reduced his price to (or accepted an offer at) $300K.
Also, as an agent for a Seller, my duty to my client is to sell his home according to his wishes. Usually this means for the most money in the shortest time. The priorities of each Seller differ, however usually the desire is “get my home sold!”
smarten
Guy wrote: “as an agent for a Seller, my duty to my client is to sell his home according to his wishes.”
Maybe. But UNTIL you become his/her agent, you owe no duty whatsoever. So the point I think a number of us are making is that if a potential seller-client wants you to list his/her property for sale at an unrealistically high price, you have no duty to honor his/her wishes. You should simply walk away, wish him/her well, and let some lesser agent spin his/her wheels.
GuyJohnson
Smarten, I absolutely agree. I have walked away from more than one listing for that very reason. Coincidentally, tomorrow I may be informing a prospective client that I cannot take his listing because of his pricing expectations. We’ll see how the conversation goes.
Sorry I missed the point you guys were making.
Lynne Black
I think its ok for an agent to list a house at a price that it will never sell for, just because there are some sellers who refuse to believe their house is overpriced until they see it languish on the market with no offers. But shame on the agent that my neighbors just relisted with after 6mths with no offers. He told them not to worry, that their house is priced appropriately because ‘people are still looking at it /boggle’
Pablo
Guy,
Once again, you are using some pretty dodgy reasoning. To say that the person who posts his house for 400K and ultimately got 300K overpriced it by 100K is reasoning after the fact. What would be useful is to know how much that person was told his house was worth and how much he decided to put it on the market for. The point of your original post, supposedly, is to warn people that they may “lose” money when they overprice their house, and then you go as far as to quantify how much they lose. However, unless you define A PRIORI what you mean by overpricing, your warnings are meaningless. A more useful analysis would be to look at a number of properties, all of which have been assessed A PRIORI to be worth the same amount, and look at how much everyone lists their properties at, how much they ultimately get, and how long they had to list the property in order to get this amount. Until you show that sort of analysis, it is really misleading (or at best, tautological) to say that people are losing x% by “overpricing” their house.
And by the way, it’s not that I necessarily disagree that overpricing your house is bad, it’s just that I don’t think your analysis of how bad it is holds any water.
Pablo
P.S. My example was not meant to be “realistic”. I simply picked an extreme to illustrate that your statistics would never reveal such a case if it existed and therefore, your claim is completely unsupported by the facts/numbers you present.
Guy Johnson
Pablo,
I concede. It’s been quite a few years since my statistical analysis courses; I admit I’m rusty, at best. [In fact, I had to google “tautological”]. I like the more useful analysis you propose. Unfortunately, this is not easily done given the “after the fact” sold data to which I have access.
If I may, given the data that I have presented above, is there any useful conclusion that can be drawn?
Thanks,
Guy
NVMojo
I know more than one idiot seller around the Reno area who thinks their house is made of gold and blames their RE agents for not selling their home for delusional values. That is not the RE Agent’s fault in cases of delusional, greedy sellers.
BanteringBear
IMO, if an agent chooses to list a property at an absurd price, then the agent is as responsible as the seller for said price. When I see horrendously overpriced properties, I automatically think, bad realtor, greedy seller. I don’t think that realtors understand how tarnished their reputations have become. If they did, they’d probably do more to repair and protect them. Their credibility is akin to that of a small time used car salesman. The lies and deceit are not only unsettling, they’re borderline criminal. This is not to say that there aren’t good realtors out there, there are, but they are the exception not the rule.
BanteringBear
Guy,
By all accounts, it seems you are doing your best to educate the seller, and price your listings to market. It’s admirable, and I’ll bet that you will sell more homes as a result. It’s better to have 10 listings and sell all 10, then have 100 and sell zero. The early bird gets the worm.
2sleepy
My neighbors turned me into the HOA for having brown spots in my lawn. Maybe it’s easier for them to blame my lawn rather than face the reality that their house has been on the market for 6 months because it’s grossly overpriced, too bad their agent won’t break the news to them, I don’t need HoA Nazi’s sending me nasty letters /sigh
MikeZ
RE: “given the data that I have presented above, is there any useful conclusion that can be drawn?”
I drew the same conclusion you did: houses are depreciating approximately 1% per month.
Pedants will argue that that the “proof” from the data provided is not absolute – and they’re right – but it’s good enough for most of us.
I agree with your analysis and conclusion, even if your proof is not good enough for a nitpickers’ court of law.
GuyJohnson
[Update] I had the pricing conversation with my prospective client. There was a $100K disparity between what the Seller wanted to list and the price I suggested. Needless to say we did not come to an agreement, and I respectfully declined the listing.
Interested Party
I’ve watched this industry be destroyed by realtors who continue to talk people into lowering their prices in a flooded market rather than suggest they hold on to their house until the market gets better. Would it not better serve your clients to advise them this is not the best time to try to sell? Instead houses are listed at ridiculously low prices therefore hurting everyone within that neighborhood. It seems that a “sale is a sale” rather than looking at what this thought process does to the market as a whole.
BTW, why would you suggest someone list a house for $250K UNDER an appraisal that is less than 3 weeks old?
Frank Borges LL0SA- Virginia Broker Blog.FranklyRealty.com
Thanks for your post.
Did you use Original list price? Also did you distinguish between DOMM and DOMP. In my area, we have two types of DOM, one that counts previous agent listings, and one that doesn’t.
Also re-listing in my area is popular since it resets one of the two DOMs.
I found when I did a similar study that the local association said that sellers were getting 2% of list. I found it to be more like 8%, when you looked at all the variables:
blog.franklyrealty.com/2006/12/mris-data-average-soldlist-ratio-986-or.html
Frank
Blog.FranklyRealty.com