Knowing When To Drop The Price On a Property
By JD Esajian on January 6, 2014
One of the hardest things to do in business, and in life, is to admit when you are wrong. There are many instances when this can come up in the real estate world, but it is particularly prevalent in asking prices. Your list price can either be based on data or a pipe dream, but it is your starting point for public interest. You know you have the right price when there is activity and the market is showing interest. Once that interest stops, you face the difficult decision of lowering your price and admitting you may have been off with your evaluation.
Before you lower your price, try to figure out why there is no activity. Is it the price, the advertising, the property, how it is showing or other factors effecting demand? If there are plenty of showings but no offers, it is a good indicator that you are priced too high. You can ask your realtor for feedback to get a sense of why there are no offers coming in. You should have thick skin and never take anything personally when dealing with a problem of this nature. A good property that has shown well will at least have a few lowball offers in the attempt to get the process started. If the price is 15-20% too high, real buyers will not even waste their time with a low offer and will simply move on to the next property.
If you are going to lower the price, you should do so with the intent to make an impact. Look to get under certain psychological numbers that can affect buyers. If it is listed at $210,000 go down to $199,900. Lowering the price a few thousand dollars will not be enough to grab the attention of the market and realtors. One sizable jump is far better than a few small jumps every few weeks. Your goal with lowering the price is to try to get a buyer with the first price reduction. The longer your property sits on the market, the less profit you stand to make and the less likely you will find a buyer.
Once you lower the price, buyers can sense weakness and even a little desperation. You should expect a few low offers to come in, possibly even cash, that you will have to look at. Before you lower the price, you need to come up with a bottom line that you would be willing to accept. Here is where a good realtor, feel of the market and solid negotiating skills can save you thousands of dollars. You can jump at the first offer you get and move on or you can dig your heels in and not accept an offer that is lower than what you truly think you can get. Your current financial situation usually dictates what you will do, but always remember that any offer may be the last one you see for a while and has to be taken seriously.
It is always best to list a property as close to market value as you can, but that is not always the case. Lowering your price and admitting you may have been wrong may be difficult, but it should not be the end of the world. You can still save face if you lower aggressively the first time and accept the right offer.