We hear it all the time: "Price your home right and it will sell." But for some reason, even in a slow market (still declining in several areas), most people seem to be pricing their homes well above market value. Why does this happen?
I decided to pull up some market statistics in the Seattle area. I pulled every active listing in King and Snohomish Counties and compared the original asking price (when the house was first listed) to the current asking price (after price reductions, if any). Here's what I found:
- King County: The average price discount (original listing price minus the current asking price) was 7.5%. Also, 46% of all houses on the market had their asking price reduced at least once. This is huge, considering that this includes houses that have only been on the market for days or weeks and haven't had a chance to reduce their price. Also, to complicate the math a bit here, if nearly half of the houses on the market have had price reductions and the average total discount is 7.5% for all houses on the market (including ones that haven't dropped their price yet), then we can conclude that the average price reduction on the houses that have already had a price reduction is double (or closer to 15%).
- Snohomish County: The average price discount (original listing price minus the current asking price) was 14.8%. Also, 48% of all houses on the market had their asking price reduced at least once. As with King County, this includes houses that have only been on the market for days or weeks and haven't had a chance to reduce their price. Just like King County, if we run the calculations only on houses that have had at least one price reduction, we find that the average total price reduction for that group is also close to 30%. That’s a pretty staggering number.
In addition to the price reductions on active listings, there's another discount that comes into play: The sold price compared to the last asking price. This is the statistic that most real estate agents will typically give, since it's the easiest to find. In King County houses are selling for around 95% of their last asking price on average (a 5% discount), and in Snohomish County houses are selling for around 96.5% of their last asking price on average (a 3.5% discount). Add this to the average discount from the original asking price to the last asking price, and you have a whopping 12.5-18.3% average discount from original asking price to final sale price. That means that on average, a house that gets listed in King County for $400,000 will eventually sell for approximately $350,000. On average, a house in Snohomish County that gets listed for $400,000 will eventually sell for around $326,800. Of course, that wouldn't be the case if the house is priced correctly to start with, which I'll be discussing in follow-up posts.
There are several reasons why sellers overprice their homes. Sometimes it's the real estate agent's fault (inaccurate comparative market analysis, trying to bid up the listing price to procure the listing, etc.), and sometimes it's the seller's fault (greed, putting too much value on improvements, not knowing current market conditions, emotional attachment to their home, etc.). Certain market trends may cause sellers to believe their house is worth more than it actually is, but that's where the real estate agent comes in--to educate the seller on how these market trends will affect the real value of their house.
Stay tuned for more. I think this is a very important topic, so I have a lot more details to share (including some details that may surprise you).
Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.
Copyright (c) 2009 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).
Most Sellers Overprice Their Homes - The Statistics