Buyers, Asking Price and Days on Market
This article is for sellers who want to put their property on the market priced too high "just to see if we can get it."
I know where sellers get it. A lot of people are out there hyping the notion that getting a higher price is a function of patience. It isn't. It's a matter of being worth a higher price. The higher priced your property, the lower the percentage of the population that can afford your property and therefore, it takes longer to sell higher end properties. But the notion that getting a better price for your property is a matter of patience is wishful thinking.
I keep telling people, if you want to be a successful seller, think like a buyer (The opposite also applies).
Here's what buyers do: They look for the most attractive property that best suits their individual needs at the lowest possible price.
Buyers are quite conscious of the fact that there are other buyers out there, and they want - very strongly - to harness the collective brain-power of those other buyers. As I had quite forcefully driven home to me recently, one of the things that buyers want out of listing services is "days on market." It wasn't a surprise to me, but the vehemence of the feeling certainly reinforced my understanding. I've written many times about the selling your property quickly and for the best possible price, and the effects of not adhering to that strategy. Buyers don't want to "waste" their time with picked over remains that nobody else liked, hence their rather strong focus on the variable of "time on market". It's incorrect, but that's the way the average buyer sees it. Kind of like the produce and meat sections of the supermarket at closing time. I cannot recall the last time a gateway client sent me an email about a property that had been on the market as much as two weeks - and at least 90% (maybe 99%) of them came onto the market within the last day or two.
So what happens when you put your property on the market over-priced? You might get showings, but when your buyers look at competing properties, they get a better deal - more of what they need and want for the same price - by buying those other properties. Therefore, they will make offers on those other properties - not yours.
Within a short period of time - usually a month or less - the showings will trail off. That pesky "time on market" counter. Buyers aren't interested in what's been picked over and rejected - they want fresh offerings, just like at the supermarket. There are any number of methods of gaming the time "time on market" counter to fool the buyers. Let me ask you: Would all these methods even exist if it wasn't important to buyers? Heck, no! (Enforcement of measures against that gaming is getting stronger, by the way).
Once your property is on the market, it's effectively a depreciating asset, thanks to that "days on market" counter. It may not be as time critical as the fresh seafood counter, but it's a matter of how quickly it loses how much of its value, not whether it does. I'm typing this on May 5 - it you're looking at a fridge full of milk cartons, would you be looking for the one that expires May 7th, May 12th, or May 17th? People are so used to doing this that they don't even realize they're doing it or that it may not be appropriate in this context. But right, wrong, or indifferent, they do this. Pretending otherwise doesn't make it so.
There is one way to refresh that interest in your property, and it's the same way that the grocery store does it. What's the feature of the "day old bread" table that people remember? Sometimes a grocer will have a place for meat or fish that's older than ideal as well, and they use exactly the same principle: lower the price.
At this stage, you've got to lower your price to compete with the other "day old bread," and to get a successful sale at this point, you've got to be priced like day old bread. This means significantly less than you could have gotten in the first place. Nobody buys day old English Muffins for a dollar when there's fresh ones sitting right next to them for that dollar, and it's not like people can't tell they're day old. So in order to sell those day old English Muffins, the store marks them down to fifty cents. The same principle will work to sell a property that's been on the market too long. Even though the discount isn't as steep, proportionally speaking, it's still cost you a large amount of money to put your property on the market overpriced. People still buy day old bread - just not for the same price as the stuff the drive delivered fresh this morning. Not to mention those carrying costs for a property. The fact is, putting your property on the market over-priced costs you thousands to tens of thousands of dollars. The longer it takes you to see the light, the worse it gets.
I've been writing all of this as if asking price was implicitly equivalent to sales price, which is not the case, but the relationship between the two is beyond the scope of this article (or any other article I'm likely to write here). Suffice to say that asking price is a representation by the seller of a sales price they would be pleased to accept.
But the buyer's perception of value diminishes with time on market, regardless of whether or not there is any merit to that viewpoint. In general, there is not, but it's kind of like believing in communism or social security or single payer health care, to construct a "Christmas Carol Ghost" parallel (disaster past, disaster present, and disaster yet to come). Doesn't matter how much nonsense it is - if enough people believe in it, it's going to be the law of the land until enough people change their mind or the whole system falls apart. Since the time between adoption and abolishment is longer than most property owners can hold onto that property, this means you might as well treat it as a fact of life, because from the point of view of a seller, it is.
You can avoid this issue by pricing the property correctly in the first place, and correct pricing should be a difficult discussion if your prospective listing agent is any good. If the pricing discussion isn't difficult, were I in your shoes I'd take that as a strong warning sign and tell that agent that their services are not desired.
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