Case Study: Pricing
There is no more important decision a seller can make, other than selecting the right listing agent for their situation, than the pricing at which to launch a listing. That has always been true and in the today’s market, it is even more important than ever. Here’s why.
buyers have more information than ever before and are effectively using data
as always, a listing is hottest when it first hits the market.
Let’s look at 2 of my recent sold listings for some insight.
5512 W 149th Pl Unit 7 Fusion at South Bay
This listing closed escrow in July of 2020.
When we came on the market, there was another competing property that at the time was listed for $749,000. That price was beyond “aspirational”. I would say it was delusional as it was at least $50K higher than any other comparable sale. True, the other unit had more recent and very nice updates but nothing to justify the huge price differential.
My recommendation to my seller clients was to list for $699,000. There was some debate as to why we would be so much lower than the competing unit. This often happens, a seller looks at a listed property that hasn’t sold while agents (and appraisers) look at what has sold. The highest (pre-Covid) sold prices I could find for comparable units was in the $690’s (which co-incidentally was exactly what the appraiser looked at).
As soon my listing hit the MLS for $699,000, the other unit dropped their price to $719,000 which I predicted to my clients would happen. How did I know? Experience.
Shortly after the price drop, the competing property, 5404 W 149th Pl Unit 7 went under contract. When a property goes into escrow we don’t know the sale price initially because the MLS only shows the last listed price which in this case was $719,000 fully $20K higher than where we were priced.
Now sometimes that helps because potential buyers don’t know the price either. In other words my listing was looking like a real bargain compared to the one in escrow.
As a result, we received 4 offers over the next week or so and after going through the SMCO exercise opened escrow at $695,000.
If you are asking what’s so great about that, well when the other competing unit finally closed escrow, the sales price was $685,000. So my clients got $10K more and we closed in under 30 days. And the listing was active for a shorter period of time.
In summary, by pricing correctly out of the gate, my clients:
Sold for $10,000 higher
31 days on market compared to 76 days
Important take away for sellers: do NOT list with the agent who will tell you the highest sales price - go with the agent who is data driven and bases the sales price on facts.
1604 Spreckels Lane, Redondo Beach Golden Hills
Picking up where I left off before, what does a listing agent do when you know that you can get a much higher price than the market may think possible based on facts but not necessarily comps. In other words, sometimes I’m telling my clients a higher price than the market may indicate because I know, based on experience, I can get it.
1604 Spreckels Lane is a great example of exactly that situation.
My recommendation was to price this Redondo Beach Golden Hills SFR at $1,199,000 which was over $100,000 higher than any sale of a comparable floor plan. Adding to that, the same floor plan 2 houses away on the same block had just closed escrow for $978,000 and would be used as a comp by an appraiser. So what was I thinking?
Glad you asked.
The house had been entirely remodeled, much of it down to the studs, by the current owners. And they had the documentation to prove it.
So I was very much looking at the price per square foot of new construction and hoping that the market and appraiser would do the same.
At my list price of $770 Sq Ft we were at basically the price of new construction in North Redondo Beach.
I also look at pricing another way: what can you buy for the same amount? And considering the appeal of this home and that new 3 on a lot townhomes are listed for more, I felt very good about getting the price. Which we did, and a few dollars extra.
Ultimately we accepted an offer for $1,209,000. Because the Buyer was represented by a family member we reduced the price by the amount of the selling agent commission except for $1000. Therefore the final sales price shows in the public records and the MLS as $1,179,775. So even though it looks like it sold for less than the asking price, it actually sold for more. Got that?
Also a good example of what I mean by there is just enough information available on the internet to get the public totally confused.
In case you are wondering this practice of adjusting sales prices to reflect what’s going on behind the scenes is a common practice which means you can’t always believe what you see.
SUMMARY
Pricing homes to sell is much more an art than a science.
Not only is each situation different, as is each parcel of real estate, but every seller is different and the Seller’s needs have to be taken into account.
There are three pricing strategies I and other experienced listing agents seem to use:
Event Pricing: priced purposely low to get multiple offers and a bidding war the first week on the market.
Market Pricing: priced the same as the most recent comparable sales.
Aspirational Pricing: higher than the initial data may indicate but the property has unique attributes.
A few comments on these various approaches.
Anyone can price a property low enough to get multiple offers. But pricing too low often leaves money on the table because there is a limit in most instances as to how high the bidding will go.
Similarly any agent can price too high. Over pricing is not the same as aspirational pricing. There are agents I see who always price their listings too high (and everyone knows it).
Market pricing requires really knowing …. the market. That means not only what has sold but what is in escrow and coming on the market as well.
Curious as to how much your home is worth in today’s market? Contact me for a confidential consultation.