For those searching for information on "home pricing strategies," "avoid overpricing mistakes," or "how to price my home to sell," this article is a must-read guide from a realtor's perspective in the competitive Wine Country market of Marin, Sonoma, and Napa counties. Drawing on data from over 50,000 recent Bay Area home sales, the article demonstrates the pitfalls of overpricing and how listings requiring price reductions consistently languish on the market far longer and sell for significantly lower values compared to properly priced homes. The article covers the concepts of fair market value, comparative market analysis, and pricing tactics to maximize proceeds - crucial knowledge for sellers hoping to achieve the highest possible sale price and avoid leaving money on the table.
Buyer agents or home sellers looking for a more detailed pricing analysis should reach out for a comprehensive comparative market report.
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The Truth about Home Pricing
“Ironically, instead of getting more money... [Over-pricing] usually stigmatizes a property and reduces the eventual sale price to less than it would have been with more realistic pricing.” – House Selling for Dummies
Fair market value is the price a qualified, reasonably knowledgeable buyer is willing to pay, which a seller, not under duress, is willing to accept after the home has been properly exposed to the market.
Neither agents nor sellers determine market value Only the market itself – willing and able buyers – establishes value. A comprehensive comparative market analysis is the best way to estimate current fair market value before listing the home for sale. Agent and seller then work together to create a plan – pricing, preparation, and marketing – to maximize the conditions that reliably achieve the highest possible sales price.
The vast majority of buyers will not make offers on homes they consider significantly overpriced. Either they don’t want to waste their time or are uncomfortable with possibly “offending” the seller. They simply move on to listings they consider fairly priced. Well-priced homes create a sense of urgency in the buyer/broker communities to act quickly with strong, clean offers and often lead to competitive bidding between buyers – which is the most likely way to increase sales price.
Overpricing wastes the optimum moment of buyer and broker attention When it first comes on the market. This moment cannot be recaptured.
Overpriced homes kill any sense of buyer urgency
They take longer to sell, which then significantly reduces value in buyers’ minds: “There must be something wrong with it if it hasn’t sold by now.” It almost always eliminates the possibility of competitive bidding.
“Let’s just put it out there at this price,” – higher than the comparative market analysis justifies – “and see how the market reacts” risks a substantial decline in sales price.
If a listing has inadvertently been overpriced (or market conditions suddenly cool), the sooner it is recognized as such and the price adjusted, the smaller the negative impact. Price reductions must be big enough to regain the attention of buyers and their agents – typically at least 5%.
To win the listing, some agents suggest a list price considerably higher than what marketconditions and comparable sales justify—because they believe this is what the seller wants tohear. This is called “buying the listing” and is a violation of the fiduciary duty of honesty that anagent owes their client.
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Price it right to begin with.
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Prepare the home to show in its best possible light.
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Implement the most comprehensive marketing plan possible.
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Hire an agent who knows how to negotiate effectively on your behalf, and diligently manage the disclosure and due diligence processes.
In the Bay Area, the difference can add up to tens or even hundreds of thousands of dollars in the proceeds of the sale.
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SUMMARY
Using data on over 50,000 home sales occurring over 12 months through summer 2023, we performed analyses on 5 Bay Area regions comprising 10 counties, comparing house, condo, and townhouse listings that sold without reducing list price before sale, to those that required one or more price reductions before going into contract and closing sale. The specific results varied by market region, but large differences in sales-price-to-original-list-price percentages – measuring overbidding and underbidding – and average days-on-market – measuring the speed of sale – between homes that sold without price reduction and those selling after price reduction were universal. The increase in average days-on-market figures across the Bay Area ranged from 6 to 9 weeks.
Calculations regarding the value differentials between these sales must be considered approximate: The same home can’t be sold at the same point in time at different list prices, with and without price reductions to compare the results. But in all the regional analyses we performed comparing the 2 types of sale, the average change in value – i.e. the average loss in value seen in price-reduced homes – was about 10%. Certainly, this differential varied widely amid tens of thousands of individual homes in varying circumstances of sale, but considering home prices in the Bay Area, even a small percentage decline in sales price typically adds up to a substantial loss in seller proceeds.
A comparative market analysis (CMA) reviews “comparable” properties that recently sold, active listings on the market, listings pending sale, and listings removed from the market without selling while factoring in the effects of existing economic and real estate market conditions and trends. Because individual homes are relatively unique commodities – varying in location, architecture, condition, circumstances, systems, and amenities – and the market is constantly changing, a comprehensive CMA relies upon a straightforward analysis of data, as well as the experience to weigh the many factors at play, to arrive at an informed estimate of fair market value at a specific point in time. It is one of the most important services qualified agents provide their clients.
Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal
Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given concerning the accuracy or completeness of the information. Compass disclaims any liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting, or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes, or regulations of any state that are those of the author(s). Past performance is no guarantee of future results.
