Ask McEnearney: How important is pricing strategy in the current market?

This week’s Q&A column, sponsored and written by McEnearney Associates Realtors®, the leading real estate firm in Alexandria, is a bit of a departure from our usual format. To learn more about this article and relevant Alexandria market news, contact us at 703-549-9292. You may also submit your questions to McEnearney Associates via email for response in future columns.

Question: How important is pricing strategy in the current market?

Answer: Precise pricing is more important than ever! Even in a white-hot “Seller’s Market,” owners must be careful when pricing for maximum buyer exposure.

It’s a market that can be enticing for sellers and exhausting for buyers: record-low inventory, high interest rates, and competition around every corner.

However according to David Howell, McEnearney’s Executive Vice President and Chief Information Officer, sellers still need to be smart and strategic in how they price their property. In fact, in reviewing McEnearney’s most recent statistical research, Howell observes that there are four kinds of sellers in this market — the Very Successful, the Eventually Successful, the Hopeful, and the Failures.

Let’s examine who has the numbers on their side.

The Very Successful Seller:

This is what every seller aims for but only about half of properties actually meet that goal. The “very successful” are those who sell at or above their original list, and those folks usually see a quick sale. For example, in October 2023 in Fairfax County and City of Fairfax, 55% of all homes sold fell into that “very successful “category, and those properties sold in an average of just 9.4 days and 2.5% above list.

The “worst of the best” in the metro area was Washington, D.C., where 40% of homes sold at or above list, and sold in an average of 17.3 days. That’s still pretty darn good.

The Eventually Successful Seller:

These homes sold, but below their original list price and with longer days on the market (DOM). In the City of Alexandria, about 48% of homes fell into this category in October, selling in an average of 30.7 days at 3.6% below the list price. In comparison, 52% of homes sold in six days and 1.6% above list.

The differences are significant — those “eventually successful” sellers took a month longer to sell (that’s another mortgage payment, insurance, and HOA or condo payment!) and sold for much less money. Those homes weren’t priced correctly at the outset, and the significant majority had to reduce their price before getting a contract.

The Hopefuls:

The third category of sellers are the “hopefuls.” Those are homes on the market that haven’t yet accepted an offer. In every jurisdiction we track, the average DOM for these “hopefuls” is at least twice as much as the average days on the market for homes that sold. This is where “testing the market” is at a seller’s peril. Buyers are scouring inventory for the right home and if a listing comes to market and isn’t attracting offers, holding out longer for “That One Perfect Buyer” is not going to solve that problem.

In fact, buyer mindset can affect even normally-priced homes that haven’t yet sold. If the average DOM is 7 days and your listing is at 14 DOM, some buyers may assume something is wrong with the property, even if there isn’t. This in turn brings lower offers — if any.

The Failures:

That brings us to the final category of sellers: the “failures.” We know that sounds harsh, but roughly one in every eight homes that go into the MLS expires or is withdrawn before it sells. This could be for any number of reasons — inflexible seller, significant property damage, distressed sale — but the end result is the same: no buyers were interested.

So, if most of the Washington metro area is in a seller’s market, why aren’t these homes selling? As shown, even with so many market advantages, 3 out of 4 sellers won’t sell their home right away. In most cases, this is because they simply aren’t priced in line with the reality of today’s market where many buyers have been slammed by higher mortgage interest rates.

What can a seller do to ensure they land in the “Highly Successful” camp? The first step is to work with a licensed Realtor® who will provide local market insight and guide your pricing strategy. The second is to prepare your home to attract the most qualified buyers: fix, remodel, and paint for the best first impression, and consider offering credits for buyers.

Finally, have a plan to make a pricing adjustment if the home hasn’t sold within 21 days, which appears to be the local “tipping point” when sales prices drop. In a recent study by the National Association of Realtors, a listing that is 30 DOM without an offer is likely 3-5% overpriced. Be ready to make a pricing decision that keeps you within a competitive time-and-pricing window that keeps buyers interested.

As we have noted before, there are still buyers actively engaged in the market, but they make their decisions based on value. And they don’t see value in an overpriced home. So, heed the warnings of three out of four kinds of sellers who learned the hard way: price matters and time kills.

If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.

McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria