Price Reduction In Real Estate: A Complete Guide
If you’re selling your home, one important factor is the list price. You’ll want to make sure you’re getting enough back to pay off your current mortgage, recoup any investments you’ve made in the home and – ideally – make a profit.
But the best price for you isn’t going to be the best price for potential home buyers. That’s why a price reduction might be an especially smart move if your home has been on the market for too long.
Let’s look at a few points to ponder before reducing the asking price on a home.
What Is A Price Reduction?
A price reduction is simply the act of reducing the price of what you’re selling. So, in real estate, a price reduction means lowering the asking price on a property you own.
A home not quickly selling is just one reason you might consider a price reduction. Before you change your price point, let’s explore a few other reasons it may be a good idea to go with a lower price on your house.
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Indicators Your Home Needs A Reduction In Price
If you find yourself asking, “Why won’t my home sell?” you’ll need to start thinking about potential underlying factors and enlist the services of a real estate professional who can help.
Next, we’ll examine three strong indicators that a price reduction on a home is warranted.
Local Real Estate Comps Are Priced Lower
Real estate comparables, or “comps,” are recently sold, similar homes in the area where you’re attempting to buy or sell property. While you certainly want to get the best deal on your home, it’s important to list the house at a price that’s in the ballpark of comparable sales. Otherwise, buyers won’t have much incentive to look at your house.
No Recent Showings Or Offers
One common indicator of whether a home is priced too highly is how many showings have been requested and how many offers you’ve received since putting the house on the market. If you’re a seller whose home isn’t getting much attention compared to nearby properties, it might be beneficial to think about a price cut.
Your Home Has Received A Low Appraisal
Before listing your home on the market, it’s wise to get a home appraisal so you’ll know how much the house is actually worth. Having knowledge of this number will guide you in setting the list price – but just keep in mind that the appraised value might not be anywhere close to the sale price you had in mind.
If you receive a low appraisal after already establishing a list price, it’s usually a sign that you need to drop the price tag.
Price Reduction Strategies For Sellers
Now that we know why a home might not be selling, let’s dive into a few strategies for implementing a reduction in price or making a price reduction more effective.
Talk With Your Real Estate Agent
Working with a real estate agent is key to selling any home, no matter the price. Agents have access to the multiple listing service, or MLS, and can review comps to help you decide the best way to go about a price reduction. Additionally, they may be able to recommend better ways to market your home if you aren’t receiving requests to view it, or they might offer tips on staging your home if you’re getting visitors but no offers.
Lower The Listing Price Once
If you decide on a price reduction, it’ll be tempting to not lower the price by too much. However, if you drop the price in small increments, home buyers may not even notice the difference, or they may assume you’ll lower it more down the road. To avoid these possibilities, lower the price once and do it decisively. The amount you reduce the price could be as little as 0.5% of the current asking price or as much as 3% – 5%. It just needs to be noticeable and based on your assessment of the current real estate market.
Update Your Listing Or Relist Your Home
If you’re planning a price reduction, you may also want to update your listing with new photos or more details. Don’t be afraid to ask those who’ve expressed an interest in the home why they aren’t buying, since this kind of feedback can guide you in making the changes necessary to sell your home faster. Along with dropping the price, in some cases, you may even want to remove your listing and relist when demand for homes is greater.
Benefits Of A Price Reduction As A Home Seller
Although it may seem at first like a home price reduction isn’t such a good idea from a seller's perspective, reducing the sale price has its clear advantages – three of which we’ll review below.
Increased Likelihood Of A Faster Sale
As noted, one benefit of a home price reduction is a stronger possibility of selling the home and doing so in less time than you otherwise would. A price adjustment on your home could move some buyers in your direction and away from similar homes on the market.
A Better Chance Of A Bidding War
If your home recently had a significant price reduction, potential buyers will inevitably be more attracted to the new asking price. With more eyes on your property, it could start a bidding war between buyers that results in you selling for more money than you anticipated.
The Potential To Avoid Paying For Home Improvements
If your home needs renovations but you’re looking to sell, you could lower the asking price instead of paying for the improvements. Although renovations typically add value to a home (allowing you to sell it for more) and make it more attractive to potential buyers, a simple home price cut might be the best option if you’re not interested in renovating or lack the time and/or financial resources to do so.
The Bottom Line: A Price Reduction Isn’t Always A Bad Move
A price reduction in real estate can be necessary for multiple reasons. The key is to weigh the reasons for reducing the price against your desire to get the maximum amount on your sale. If failure to drop the price is ultimately going to impede your ability to sell at all, cutting the price is inevitable regardless of how much you might not like it.
Are you a potential home buyer looking for a new home? Get started with us today and have one of our Home Loan Experts guide you through the home buying process.