I was recently approached by a person who wanted to know my thoughts about the listing price of his home. He thought his home was listed too high and specifically wanted to know when, and by how much he should lower the price. Although I wasn’t his REALTOR®, and I didn’t have all the information about his home, my initial response based on the limited facts was that he should immediately lower the price. My rationale is listed below.
There are a number of drawbacks to overpricing your home, especially in a balanced market such as the one we are currently experiencing in the Toronto area. First, most serious buyers have been watching for new homes listed on the market over a period of time. They are generally well informed by their Realtors whether a newly listed property is priced accordingly. Second, the longer a property is listed on the market, the more likely it will be stigmatized by buyers. If you lower the price and it’s been sitting on the market for a while, they will begin to wonder why it is not selling and what is wrong with it. Even if you decide to remove it from the market and re-list it a later time, the MLS® property history will still be available to prospective buyers through their Realtor. Third, a home that is priced too high will attract showings, but for the wrong reasons. Other Realtors may begin showing your property to potential buyers as a comparable to help them sell a different lower priced property. Thus, the other property will be seen as a ‘bargain’. Now turning back to the initial question. It is important to know that if you do not receive any offers in the first week of listing it, and you feel your home is overpriced, you should lower the price immediately to avoid stigmatizing it. Depending on the average Days on Market (DOM) for your community, the initial price drop will be perceived by other Realtors as an adjustment as the property is still considered newly listed. It also shows your willingness to potentially negotiate further, if needed. There is a lot of focus on getting the best price for your home, but many people lose sight that the best price, may not always be the highest price.
The second part of the question is a little more complex. How much do you lower the price? This is very subjective and it requires your Realtor to do some work and earn their commission. Simply looking at comparables and suggesting a price is not diligent enough. I would recommend that the property be priced properly prior to listing to avoid this dilemma. First, the Realtor needs to learn about the property from the seller and complete a pre-listing questionnaire. Second, the Realtor should prepare 3 different reports for the seller: a Comparative Market Analysis (CMA) report, an MPAC Propertyline comparable report, and a GeoWarehouse comparable report. Third, your Realtor should review the Toronto Real Estate Board’s monthly Market Watch Report to look for any market trends and discuss them with the seller. Third, your Realtor should know your market very well. They should be familiar with local government policy initiatives and be able to provide insight into any changes that may be impacting your community. For example, all Realtors are capable of selling homes across the Toronto area however, a Realtor that focuses on commercial properties in Mississauga, may not be the best fit for selling a residential home in Markham. Lastly, marketing the home is often overlooked by sellers. Every Realtor can use a cell phone camera and place your property on the TREB MLS®system. But what else are they doing to market your home? How often are they hosting open houses? How are they advertising to international buyers? Are they using tools such as the Buyer Registry Service? Did you know that this is a very useful database that can provide your Realtor with information on the number of potential buyers for your home, and how much they are willing to pay? Does the brokerage have access to extensive seller resources and a large internal network of Realtors that can also promote your property?
There are many tools a Realtor has available to help them recommend a selling price for your home. Keep in mind that the final decision is always the sellers; however as a professional, a Realtor should provide his or her clients with sound advice based on due diligence. Having said that, there is always a subjective factor to real estate. In a perfect market, your Realtor may be able to determine an approximate market value for your home. In reality though, the value is ultimately determined by what a Buyer is willing to pay for your home, which can be unpredictable.