After a year in which one in three homes on the market sold for above the original asking price, UrbanTurf decided to ask real estate professionals in the DC region about their pricing strategies in a hyper-competitive market and what they are telling buyers to do, given the current landscape.
For some, today's market isn't unusual enough to change pricing strategies; they look at comparable sales nearby while aiming to land on a price that will attract the widest pool of prospective buyers. But while hard numbers undoubtedly are a key part of home pricing, there is also a psychological component to homebuying that at least partially explains why so many homes are selling at a premium.
"The trick in pricing is not to get misled by the escalations that we're seeing, because the final sales price doesn't necessarily reset the marker for what an effective price is," Long & Foster's Dan Metcalf told UrbanTurf. Metcalf noted the importance of pricing based on what a buyer would perceive as a good deal for a particular property, depending on what that property offers or how it "shows."
Linda Chaletzky of Evers & Co. thinks that, even in a competitive market, buyers balk at prices they perceive as too high.
"I would rather have more competition and people eager for a house than people who are having second thoughts about the price," she explains, noting that eagerness also translates into a more rewarding experience for the buyer who beats out the competition. "When they know it's competitive, it gives them more confidence in their high escalating. [They know] someone else wanted it that much."
A recent listing of Chaletzky's — a mid-century modern home on DC's western border — sold for well above the original asking price. She said this was not necessarily the result of it being priced too low, but because it was priced to hedge against the quirks of the property (eg. a lack of garage, unusual architectural style for its neighborhood, etc.).
Furthermore, agents recognize that it can be detrimental to a listing's prospects if too-ambitious pricing leads to it sitting on the market, particularly when it seems like everything is flying off the market.
"There's a perception that everything is selling, but there's the reality that in a lot of areas you'll still see that one property that's sitting because it overreached," Metcalf said. Considering the state of the market, Chaletzky says that people are suspicious of properties that have sat on the market for more than two weeks, past what she describes as the "honeymoon period."
The other factor to consider in all of this is the extremely limited supply of homes on the market. There were 4,761 homes for sale in the DC area in December, down 13 percent compared to 2019 and the lowest level for the region on record. The supply of homes, combined with interest rates at historically low levels, invariably results in competition and prices being pushed up.
With all that is happening on the listing side, some agents are having to come up with new approaches for their buyer clients.
One agent told UrbanTurf that he is telling his buyers to lower their budget by 10-15% in order to be able to use the extra budget when competing for a listing. The agent also recounted a conversation they had with a home appraiser who has only been using comparable sales from the previous 30 days to assess the value of a property in the DC area. Typically, appraisers use comparable sales from the past several months in their valuations.
As the spring market gets going, it will be interesting to see if these dynamics continue to be a factor.
This article originally published at https://dc.urbanturf.com/articles/blog/the-price-is-right-how-home-pricing-and-buying-strategies-are-changing/17930.
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