The Washington Post
BY DAVID HOWELL David Howell, executive vice president and chief information officer at McEnearney Associates, writes an occasional column on the Washington area real estate market
LARRY DOWNING/REUTERSA “For Sale” sign hangs in front of a house in Virginia in 2014. Buyers are quick to take a pass on homes that aren’t priced correctly.
It is critically important to price a home correctly when it first goes on the market. The reason is simple: The greatest number of buyers are going to see the house during the first two or three weeks.
Sellers who price their homes correctly are likely to be rewarded. Those who overreach, who think they can “just wait for the right buyer to come along,” are likely to be disappointed, as that usually means the house will sit on the market and take a big hit financially.
Recently, my team at McEnearney Associates took a look at all resale homes that went to settlement in the Washington area in October and November and broke them down into two categories — those whose initial list price had to be reduced before getting a ratified contract (homes with the “wrong” price) and those that came on the market at the “right” price, never having to drop their list price.
The consequences of pricing strategy were starkly different. Homes whose prices had to be reduced before attracting a buyer were on the market three times longer — an average of 98.1 days — compared with correctly priced homes, which sold in 30.1 days. Sellers of homes with the right initial price were less likely to pay any subsidy, and if they did, it was likely to be a smaller one.
But the biggest impact of pricing strategy is on the seller’s bottom line. Homes that sold without a price reduction sold for an average of 98.4 percent of the list price. Those that came on the market too high had to reduce their price by roughly 6 percent before a buyer was willing to make an offer.
And when that offer came in, those sellers had to negotiate a further reduction, ultimately settling at an average of 10 percent below their original price.
Are there exceptions to this? Of course — but not many. And does this vary by area? Yes. The differences are even more pronounced in the hotter market areas.
Homes that hit the market at a price that attracts buyers are sold in an average of just one month and very close to list price. The wrong price means more than 90 days on the market and a 10 percent discount from the original price.
Buyers will move forward on homes that are priced correctly, and they will take a pass on ones that aren’t. Getting the price right from the beginning is the most important thing a seller can do— it really is that simple.
The impact of pricing strategy is similar for each jurisdiction. Getting the price right when a home first goes on the market pays dividends for sellers.
In general, homes that had to drop their price before attracting a buyer were on the market three times as long as those that were priced correctly. In the District — the hottest market in our region — it was four times as long.
Correctly priced sellers in the District also had a better bottom line, with homes selling, on average, right at list price. Those sellers that had to drop their price took a bigger hit than elsewhere in the region, selling, on average, almost 12 percent below the original list price.
Sellers who think they can “just wait for the right buyer to come along” are likely to be disappointed, as that usually means the house will sit on the market and take a big hit financially.