Pricing Right is Critical

When listing a home, pricing right is always critical. It is especially important when inventory is higher than normal, like we are experiencing in the Greater Toronto Area currently.

Listings that are priced well attract attention, create urgency, encourage showings & are more likely to receive offers. Even if a homebuyer likes the look of a house, if they think it is overpriced, they may not even book a showing. This could be for a number of reasons. The current list price may place the house out of their price range. The buyer may not want to become emotionally invested in a home if they feel that it is unrealistic to negotiate to a price they are comfortable with. They may perceive the seller as not being realistic or serious about selling. The relationship between the price and the buyer's enthusiasm is often psychological. Many just don't get as excited to see a house if they don't think it is good value. Some sellers prefer to start high, with the plan of negotiating down with a buyer. Sometimes this works, but you need a dance partner to negotiate with. And sometimes there is no one to dance with.

If you are a seller who is concerned about the risk of the market softening and prices dropping, it is better to sell at today's price than tomorrow's price. Sometimes a seller and listing agent can find themselves one step behind the market. They start out too high and are too slow in adjusting the price. Unfortunately the market has slowed, and their new price (which was once a sharp market value price), is now still too high. One step behind again. Homes that have been listed for a longer time may elicit questions from buyers about whether there is "something wrong" with the house. In an environment where it is typical for homes to take a little longer to sell, there is less stigma with a listing that has been on the market for some time, but generally you would prefer not to get stale.

Its easy to broadly recommend that listing at an attractive market value price is a good strategy. But there is no black book for real estate. Even the most advanced algorithm, or the most experienced agent can't perfectly predict the value of a home. Homes are unique and markets are always changing. So its important to listen to the market. If the home isn't getting regular showings, receiving feedback from agents, or generating any serious interest, it may be time to revisit your pricing strategy. A good rule of thumb: consider a price reduction if you haven't received an offer after 20-25 showings, or after 3 weeks (whichever comes first).

It's worth noting that prospective buyers don't always say that price is explicitly an issue, even when it is one of the reasons they are not moving forward. Like we mentioned earlier, pricing has psychological and emotional impacts on buyers. They may reference other issues with the home as a reason to not make an offer. We do know that if a price is perceived as being very sharp, a buyer will rationalize away imperfections that may have been cited as issues. If there is higher than normal inventory, a buyer may not feel an urgency to act. If they come across a home that they perceive as being of great value - they may be prompted into action.

Is there a danger in underpricing? Absolutely - no one wants to leave any money on the table. That is why it is important to work with an agent who knows your market and can offer informed, research backed advice. An experienced agent can also read the signals that the market is providing. If a listing is receiving higher than normal interest, there are ways to mitigate the risk of selling below market value. If interest is high, a listing agent can request that all offers remain valid for 24 or 48 hours, or they could even set an offer date. Both tactics create time for other buyers to come forward, and allow for competitive pressure to build.

We are always happy to discuss the real estate market with our friends and clients, and provide our perspective on appropriate strategies. If you know of anyone that could benefit from our advice, we would love to help. As always, thank you for your referrals to friends and family. Cheers, Joe, Doug & Randal Real Estate Team