For sellers who insist on “testing the market,” the only true test may be of their patience as they lose time, money, and potentially, any hope of a sale.
It was a normal listing appointment. An exchange of pleasantries with the sellers followed by a tour of the home. Our sellers had lived in the home for many years. They had raised their family in the home and pointed out much of their family history. The corner where the Christmas tree was placed each year. The notches on the threshold to the kitchen showing the height and age of their children. The large oak in the backyard where their son broke his arm when he was eight years old.
Once the tour ended, we sat at the kitchen table to discuss the next steps.
“We want to test the market.”
If you aren’t familiar with the term, testing the market in real estate means, “We want to list at an artificially high price to see if someone loves the home enough to pay that price.”
What is “Testing the Market”
Outside of real estate, “testing the market” is standard practice by companies. From automobiles to fast food to potato chips, companies want to gauge the interest in a product with its potential customers. The product is presented to a group of people. Comments and reactions are studied to evaluate product potential. So, how does this relate to the idea of “testing the market” in real estate? It doesn’t!
Where companies like Honda Motors, McDonald’s, or Frito-Lay can take months or even years to develop a product, and the ability to “tweak” the product as they go, a home seller has…
One House, One Market & One Chance
In short, “testing the market” in real estate is a REALLY BAD IDEA! Here are a couple of reasons why “testing the market” is a bad idea.
Buyer’s Have Zero Tolerance for Artificially High Prices
Years ago, buyers relied on agents to provide market data. Today’s buyers have many tools at their disposal to determine if a price is realistic or not. With the internet, a buyer can look on Zillow, Trulia, Realtor.com, or any other national real estate website to see the list price of comparable homes.
All of the websites have an automated valuations model (AVM), like a Zestimate, to gauge whether a price is realistic or not. Sure, AVMs have their flaws, but they are a pretty good tool to identify if a list price is realistic or over-inflated.
If a price is obviously high, many buyers will assume the seller is unrealistic and will not be interested in the home. Most buyers will look at a listing on any of the national websites for less than 10 seconds before deciding if they are interested in the home or not! If the listing is significantly overpriced, most buyers will just pass on by.
If the Buyer Requires a Loan, the Transaction will Require an Appraisal
Yes, it is a seller’s market! Homes are selling for top dollar! Many are selling above asking and with multiple offers. Sure, as a seller, you may find an all-cash buyer that doesn’t care what price they pay, but the chances of finding an all-cash buyer, that will pay any price, even too high a price is unrealistic!
Here are some stats in Wake County, North Carolina for December of 2020
- 34% sold above the final list price
- 13% had competing offers
- 68% reported financial concessions
- 15% of the closed sales were financed as all cash.
Even if a buyer falls in love with a home and is willing to pay the above-market price, if they are obtaining a loan, chances are high that an appraiser will come back with a lower value. Also, even an all-cash buyer can request an appraisal.
Overpriced listings miss the ‘magic window’
In this competitive market, most homes generally sell within the first 30 days and those that receive the highest price offer generally receive those offers within the first 14 days of listing.
If a seller, after extended days on the market, relents and lowers the price, buyers will often write offers even lower. It’s far better to price it correctly, to begin with, and capture the market activity that occurs during the “magic window”.
Seasoned listing agents have a low tolerance for overpriced listings
Although not true in every market, here in the Raleigh-Durham area, many listing agents frequently invest large sums into marketing homes, including extensive property prep, complementary staging, full professional picture packages and more. As a person that owns and operates my own busines, I am not willing to invest my own time and money for a listing that I know will not sell.
COVID-19 has changed everything
Because many regions across the country now have dramatic restrictions limiting buyer access, home searches and home showings have become more purposeful. The restrictions placed due to COVID in many markets; e.g. no open houses, limited viewing windows and limits on the number of people that can enter a home, a potential home buyers are getting very picky on the properties that are willing to visit. No one wants to waste their time seeing a property that is significantly overpriced.
“Testing the market” may have been a viable idea years ago, but with ever-increasing access to market data and new buyer behaviors, it’s a practice that needs to go the way of the Model T and the Dodo Bird. For sellers who insist on “testing the market,” the only true test may be of their patience as they lose time, money, and, potentially, any hope of a sale.
Other Posts from Our Blog
What Does 2021 Have in Store for Home Values?: Link
New Years Resolutions Homebuyers: Link
New Years Resolutions Home Sellers: Link
2020 Year in Review: Link
About Log Pond Realty
Home is where your story begins. Home is where hopes and dreams are born, memories are made, and lives are lived. We would love the opportunity to assist you in writing your new story.
We service the Triangle region of North Carolina including Raleigh, Cary, Apex, Holly Springs, Morrisville, Fuquay-Varina, Durham, Chapel Hill, Wake Forest, and Garner.
Contact us 919.589.3576 | firstname.lastname@example.org