August 25th, 2020
Is a price reduction the only method available to re-attract buyers that have rejected your home and attract new buyers who have yet to consider your home? There are a number of Palos Verdes
homes that have been on the market for more than 60 days and generally, any property on the market for more than 30 days has had sufficient numbers of buyers through to reasonably conclude that if the house hasn’t sold, it’s over priced. If you’re reading this and are one of those Sellers, sorry, and that’s the reality. To the left is a chart of the percentage off original list prices for Palos Verdes homes listed for more than 60 days (email me if you want a larger image to study)
I understand the reluctance to entertain a price reduction.
- You counted on your agent to establish a good list price that would cause buyers to perceive value in your home instead of your home’s competition and yet nothing is happening. You’re getting low ball offers (at least “low ball” defined by you; have you considered the fact that these numbers are closer to reality than your list price) or worse yet, no offers so you have no clue as to what market acceptance is.
- Or you ignored your agent’s advice and listed the house at an inflated price not realistic to the market and now you’re paying the price of rejection.
Well, there might be another way other than to entertain a price reduction to get buyers re-engaged with your property. First let’s understand that one reason you’re overpriced to the market is that you priced your home commensurate with homes similar to yours which sold when interest rates were lower. As the chart here shows, the 10 Year Treasury, the note upon which most 30 year mortgages are based, has gone up significantly. In kind, so to have 30 year fixed rate mortgages. But again, does this mean you have to entertain a price reduction to get your home sold?
Not necessarily. How can you sell your house to a buyer so that they get an interest rate that is lower than what today’s interest rates are? You can buy down the interest rate. Think about it this way, when a buyer gets a loan, what are they really doing? They are “renting” money from a lender. In consideration for the lender parting with their cash so that you get it as the seller, the lender is going to want rent … interest … or put another way, a certain yield on that money. There’s more than one way to get that yield. The rate of interest is one and “points” paid are another. Most fixed rate mortgages today are priced with zero points. The fact is, the more points, the lower the interest rate in order to get to that same yield. It’s all about yield to the lender. That’s all they care about. They don’t care how they get it, they just care about getting it. So again, what if YOU paid those points and bought down the interest rate so the buyer gets the same MONTHLY PAYMENT they would have gotten had interest rates been at the level the competitive listings that you mistakenly priced your house on, sold for when they sold?
Are you following? So now your question should be, “… well wait a minute Fotion … isn’t that going to cost me something?…” And you’d be right, and my answer would be, “…do you get it that your house isn’t selling and you’re going to have to do something to make it sell and that something is going to cost you. It’s not a matter of whether or not it’s going to cost you, it’s now a matter of strategically minimizing that cost…”
So, let’s take a look at this table…
Maybe you’re looking at this and thinking that $12,312 isn’t a lot of money compared to a sale price of $1,500,000, and to that I would say, “…what, you find $12,312 cash on the sidewalk, you’re telling me you’re not going to pick it up?…. come on!…”
In conclusion, before you panic and reduce your price, remember, at the end of the day, a purchase is often and mostly all about what the monthly payment to the buyer going to be. I’ve worked this method successfully over the years in rising interest rate markets (when my sellers choose to over price their homes) and it will work for you