When is it Appropriate to Lower the Price of a Home You’re Selling?
Selling a house can be a stressful exercise, especially if you’re new to the process. A lot of money’s at stake and you may be motivated to sell the property as swiftly as possible so you can move to a new place with ample funds in hand.
If your house doesn’t generate a lot of interest in the first few weeks, you could consider lowering the price, which would expedite the process at the cost of some profit. But if the sale is mismanaged, lowering your selling price could actually hurt your chances of landing a buyer.
When is it appropriate to lower the price of a home that you’re selling and how should you manage the price drop?
The Benefits of Lowering Your Home Price
Any real estate agent can tell you about the advantages to lowering your selling price, especially if the property has been on the market for a while and showed no momentum. Here are some of them:
- More interested potential buyers. A price reduction tends to attract more eyes. Prospective buyers who may have been quietly watching the property will become more interested in placing a bid. You’ll open a door to new people within that lower price range; these folks might not have looked at your residence at its initial list price.
- A faster sale. Because you’re likely to see more interested buyers tour the property, and you’ll attract the attention of frugal homebuyers and investors, you’re also likely to land a faster sale. Depending on the amount of your price reduction and the local market conditions, you could expedite the sale by a matter of months, or at least weeks.
- (Potentially) fiercer negotiations. In some cases, a lower price can eventually push the final sale price higher. The lower amount will attract more potentially interested buyers and possibly launch a fierce negotiation process. In a sellers’ market, buyers may seek to outbid one another, and ultimately give you a higher final purchase price than you started with.
The Drawbacks of a Lower Home Price
Of course, there are drawbacks to lowering your home price, as well.
- Lower profit. The obvious downside here is a reduction in profitability. Because you’re not going to sell your home for as high a price as you could have, you’re likely to walk away with less money.
- Lost potential. If you’re too impatient to lower your price, you’ll never know what the house might have sold for. You could be surrendering potential; the question is, how much?
- A worse public image. In some cases, a significant price drop could hurt the image of your house on the market. If people presume you’re dropping the price because the house hasn’t garnered any interest, they may go on to assume something’s wrong with the property. If that happens, people will be even less likely to enter a bid.
The General Rule: Timing a Price Decrease
Houses tend to see the most activity in their first 21 days on the market. Because of this, many real estate agents advise home sellers to commit to any price drops within this period.
Dropping the price after two weeks allows you to maximize your time during peak activity, while also enabling you to capitalize on peak activity at the lower price as well. That being said, several variables can and should influence your stance here. (We’ll explore these in the next section.)
You may also be willing to consider multiple price reductions, especially if you’re not getting a surge in activity after the initial price cut. A lack of activity after the first drop could be an indication you didn’t discount the price far enough, or there are significant market issues standing in your way.
If you need to sell the home quickly, further price cuts may be your only real option.
Variables That Should Influence Price Timing
Though the general rule is relatively easy to follow, several variables should be factored into the timing and amount of your reduction in price, including:
- Market conditions. What is the market like right now? Is it a sellers’ market, in which buyers are clamoring for properties and driving up the prices on every sale? If so, you have competing effects to weigh. On one hand, there are plenty of buyers, so you shouldn’t worry about the house listing for too long; on the other, if you;re not getting any interest in a high demand market, it could be a sign that your price is too high.
- Average listing time. Take a look at the other properties in your area and try to discern how long they’ve been on the market. Let’s say you’re in a market where the average home sells in 20 days. If you haven’t seen much activity or received any reasonable bids in 21 days, you should definitely think about lowering your price. But if you’re in an area where the average sale has taken 45 days, lowering your price after just 21 days may be a foolish move.
- Personal priorities. What’s most important to you in this sale? Are you more interested in selling your home for the highest possible amount, or would you rather optimize for a quicker sale? There are no right or wrong answers, but you should be aware of your personal priorities.
- Initial interested buyers. How much activity is this house seeing? If you had a surge of interested buyers from the moment you listed the house, that’s an unmistakable signal that the pricing is relatively fair.
- Similar homes’ sale prices. How are other homes in the area selling? If you notice that your house is priced much higher than similar structures in the neighborhood, that should encourage you to lower the price.
- Previous efforts. Have you already reduced the price of your home? If so, how did that affect interest levels in this property? And how long ago was that shift? An additional price drop could be exactly what you need to close the deal.
Are you confused about whether you should drop the price of your Katy, Texas home? Or are you in the process of deciding whether you should formally list your house for sale?
The real estate agents at Green Residential can help. Contact us for a free consultation today!