Conventional wisdom has it that Montecito home sellers should ask a price that is higher than what the home is worth. This is how to sell high – priced real estate. Or is it Real Estate Roulette? In the business world, this is known as Retail Pricing.
When the buyer is willing to pay a high price – the Seller wins – and the Retail Pricing works. Does that happen often enough to be worth the risk? Most Montecito Sellers don’t understand the risks they are taking with a high listing price. They fall for the oldest line in the business. “You can always reduce your price later; you can’t ever raise it.” That isn’t true. Since homes sell over full price all the time. Most Montecito Real Estate Agents are quick to go along with the excess risk taking from high pricing because it is the Sellers who take the losses.
Montecito Market Report
Is anyone taken in when a product is constantly overpriced? In Montecito, the average house sells for 85 percent of the original listing price. A third of the homes are overpriced by 20 percent or more. This fact is obvious.
The disadvantage to Retail Pricing is the financial risk. Realtors have studied this question for decades and the truth is counterintuitive: the longer a home sits on the market the LOWER the sale price. Agents know the Seller is going to lose money as the months go by and they pay lip service to recommending price reductions, but the Seller is the money loser. The agent gets to keep the nice listing while they troll for more business.
The Days On Market (DOM) meter is like an odometer for each day the house is for sale. The DOM meter is visible to all Realtors and Buyers. As 365 days on the market become 366, the meter goes up. Buyers and Realtors think: “It’s been for sale for so long; what’s wrong with it?” or “No one wants it; why should I buy it?” There is a word for this – shopworn. And shopworn merchandise is the realm of bargain hunters. Buyers for shopworn houses think: “Since the price has already been reduced, I can get it even cheaper.”
A good Realtor can accurately measure how much the Seller is losing for every month their home stays on the market. Experience shows that after 5 months, every home, including $20M ones, lose money every day they don’t sell. Eventually, their house sells for less than it would have on the first day. The agent may be stroking the owner’s ego by keeping the price high. Or maybe it was the only way to get the listing. Either way, it’s the Seller who gets hurt.
The easiest way to sell your home for less than it is worth is to take a ride on the Retail Roulette. The months fly by and you lose money – often a substantial sum. Every price reduction is a spin of the Roulette Wheel, hoping this will be your lucky number. When it isn’t, your home’s perceived value goes down and you spin again. Most Sellers never have this risk explained to them or they would be more careful about it.
Tell the Realtors who are courting your listing, who are committed to Retail Roulette, to take their gambling habit elsewhere! There is a smarter, less risky approach that produces a higher sale price than overpricing. Price your home for what it is worth! You’ll be happier, wealthier, and experience less stress and disappointment. To find out how to proceed, call me at Berkshire Hathaway 805-451-9300. I welcome your call.
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