It's the worst-case scenario for home sellers: To endure price cut after price cut until their houses become stigmatized and hungry buyers smell blood. But how can you avoid this unpleasant scenario in today's troubled housing markets? The answer, experts suggest, is to put your home on the market at the right price, and if it doesn't sell quickly, cut the price deep and fast, so you won't be caught in a downward spiral of price reductions.
Not surprisingly, few sellers want to hear that advice. They'd rather price their homes aggressively and then hope buyers will take the bait. But testing the market simply isn't a good strategy with home prices depressed, sales at a slower pace in many markets and buyers on the hunt for good deals, explains Mark Reitman, Chicago sales manager for real estate brokerage Redfin in Schaumburg, Ill.
Buyers today are "looking at every aspect in so much more detail and trying to find out how they can get a lower price," he says.
The high-and-hope strategy is so ill-advised that some brokers won't accept listings they think are overpriced. Among them is Tony Marriott, an associate broker with Keller Williams Realty Professional Partners in Phoenix. Marriott says he shies away from sellers who aren't realistic or won't commit to an automatic price reduction if no offer has been accepted within a few weeks after the home has been put on the market.
"We go into it with a fairly aggressive discussion upfront, saying, 'We are listing your property to sell the property, not to go fishing,'" he says. "We need to have a game plan in place to take the emotion and hand-wringing out of it."
Falling home values make pricing paramount
Pricing is especially crucial today because a trend toward lower home prices "prevailed throughout 2007 and has continued through the first half of 2008," according to Standard & Poor's, a New York-based financial company that publishes the S&P/Case-Shiller home price indexes.
Economists have debated the relative merits of home-price indexes, and while there is little agreement on which measures are most credible, there is an undisputed consensus that home prices have fallen and may continue to do so, albeit perhaps at a slower downward pace.
There is "no national turnaround" in home prices, though it's "possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level," says David M. Blitzer, chairman of the S&P Index Committee.
House prices have fallen more sharply and quickly during this downturn than they did during previous downturns, according to "Downward Stickiness in Prices," a paper by Karl E. Case, professor of economics at Wellesley College and co-creator of the S&P/Case-Shiller indexes. Case attributes this diminished "stickiness," to use a bit of economist-speak, of home prices to foreclosure sales and the use of adjustable-rate mortgages during the recent housing boom.
Yet homeowners still cling to outdated beliefs about the value of their own home. A survey by real estate information Web site Zillow.com found that 62 percent of homeowners believed their home had appreciated or held steady in the past year, even though 77 percent of U.S. homes lost value during that period.