This is the benchmark I use, and it proves true historically as a middle point for real estate swings:

If with a 20% down payment and good credit financing, your mortgage payment + property tax = rent, you are at the mark that real estate historically (till just the last 7 years) has pinned itself too. On top of that, you can factor in expected short term appreciation or depreciation. So, in today’s market of deprecation, a property’s true value is actually below the equation because you have to factor in some loss in value. The reason things were so far past the ratio in the last few years was because of historically high appreciation. (due to CDO’s, loose lending standards, speculation, etc…)

I don’t agree that is always true. We have a less than 5% absorption rate and there are houses that are in neighborhoods that only have one sale per 6-9 month period. While there is a low water mark for every house where ANYONE would buy it, I would not be serving my clients’ best interest to advise them to price it excessively below market value.

Our over $1M market is slow and we have a house that SHOULD be priced at about $1.2M. It is priced at $999K. We could just keep dropping it until SOMEONE would agree to buy it OR we can wait until the right buyer who is qualified to buy it enters the market. The person who will buy this house may not be looking today, and asking our client to drop it to $750K to satisfy my need for a quick paycheck is not fulfilling MY fiduciary responsibility.

Now, I DO have people who should drop their prices due to their circumstances and a NEED to sell in today’s market, BUT if I am truly looking out for my clients best interests, I need to weigh the market-vs-their time line to sell, and price it at a point that will attract the most buyers possible.

If they were priced right, I guarantee they would have sold. Pricing “right” means asking for what people are willing to pay. I’m positive someone would take a house immediately sight unseen for $100,000 anywhere in San Diego. (note I said house, I know some condos are listed for < 100k) A house west of the 5 south of the merge and north of downtown in any condition would probably sell overnight if they asked for $300k or less. These are extremes though. If the house isn’t selling at a price, the most probable answer is because they are asking for too much.

I think the message here is waiting for prices to come up or waiting for that mystery buyer to finally come along is NOT a winning strategy. Just keep dropping the price and someone will buy it. That way you can pass on your property to someone who is in for a long term investment and get out before prices go down more which is the most likely outcome in this situation.

Me, I’m still waiting for someone to buy my Google stock for $650 a share. I mean it used to sell for $750, I priced it right, and I swear there’s got to be a buyer out there for it.

(just kidding, I dumped my Google stock at the peak)

You didn’t mention the people afraid of “giving their house away”. I can’t tell you how many times we listed a house dead on for pricing (no bargain, just priced right) and it sat there, even though the owners felt that they were giving it away.

I think everyone is trying to avoid being ripped off, either buying too high or selling too low!

Dang! Your comment should have been the post. Much more succinct! We are truly telling a tale of two cities these days, and at the risk of sounding like a broken record, it is mediocrity that is paying the price.

Wow! This post really nails it for what I have been seeing. I am currently working with several “latent” buyers who are well-qualified and ready to go, but the inventory just isn’t there. The very few properties that are coming on the market in good condition, priced right, and are not a short sale, are turning into bidding wars! The rest of the homes are just sitting, while the sellers continue to want 2005 to come back!

Pricing really is an art – you don’t want to recommend too low a price, but if it is over-priced it will linger and the seller will eventually get substantially less!

There is latent demand from sellers for buyers who still want to pay yesterday’s over-speculation (25% YOY appreciation) prices. And these stubborn sellers ain’t budging. It’s just funny because back in 2006, I was telling sellers to drop their prices 15% and their house would sell. Many of those houses are still on the market because they didn’t want to, and the funny thing is they are now asking for 15-20% less. If only they listened. In today’s market, offering a property 20% below comparable listings is a great way to sell it, but in a down market, that same 20% drop is likely to occur for all the other listings over the next 8 months anyway.

In other words, too many people could have gotten out with more if they just reacted sooner, and the same is true today. Changes in real estate momentum are historically slow, and we are at the highest % rate of YOY price drops ever. Even if this is the worst it will get, prices are likely to continue to drop another at least 5-10% before stopping. Personally, I can see at least another 20% shedding before things grind to a halt.

If you want to time a bottom, wait till sales volume hasn’t changed or goes up YOY. (don’t look month-to-month, you’ll just be thrown off by seasonal changes) This will tell you that buyers are finally happy with the prices sellers want, and we can start to see prices stabilize.

Basically, I’m saying I agree

It’s a delicate balancing act, really. In this market, we are finding that simply pricing on the money tends to generate multiple offers. I would never recommend under pricing – ever. But, if you start too high with the expectation that buyers will want to negotiate, you have very little chance of generating enthusiasm from a large crowd. That is, unless you are so truly unique and sought after that you can get away with it. On the other hand, it happened recently where we had a home we knew would be well received, we priced it higher than recent comps but within reason, and the seller received three offers within four days. Needless to say, if they had over-priced, they would have been absent this competition and the result would have been less favorable.

I guess the bottom line is that pricing is an art form, and the seller and the agent have to have a deep and accurate knowledge of their specific market and of buyer mentality in that market.