How to Price Listings in a Shifting Market

By MNR News posted 10-06-2022 20:47

If you sold a home in the last two-plus years, you likely saw a sizeable return on your investment. The combination of historically low interest rates and dwindling inventory made for a uniquely intense seller’s market. But the cool-down of the last few months has been something to behold, occurring at a faster pace than many experts predicted.

Mortgage rates have risen to 6 – 7% as the Fed continues trying to control inflation. While this certainly contrasts with the 2.5 – 4% rates of the last couple of years, today’s rates are more in line with historical averages.

Counseling Clients as the Market Changes

As the market has become more balanced, those looking to sell face a new challenge: pricing their homes accurately. For the past couple of years, sellers have capitalized on aggressive listing prices. And with inevitable multiple offers, many sellers have seen already high list prices pushed even higher through bidding wars. But that’s no longer the market we’re in.

Realtors® monitor market trends closely so they can wisely counsel their clients. In a shifting market, this is even more crucial. So how can Realtors® help seller clients price their homes accurately in this environment?

Andy Weitnauer, co-founder and broker of Wits Realty in Minneapolis, says it’s key for Realtors® to help clients have realistic expectations. “Sellers need to hear that it’s not the time to go for an extra 5-10% above what the comparable homes have sold for. The market is still strong and you can still be competitive, but a seller’s aim should be to price accurately and accept an offer with good terms.”

Weitnauer got his real estate license in 2004 and founded Wits Realty in 2012, so he remembers well the crash of 2008. While he doesn’t believe this correction will be as severe, he does believe there has been and will be a reduction in home values. “It’s not as though prices dropped 20% overnight. The difference, in contrast to what we’ve seen in the last two-plus years, is that sellers should no longer try to stretch for that extra 5-10%. Pricing a listing fairly and accurately from the start right now is crucial.”

According to Weitnauer, that’s the most challenging aspect of counseling sellers in today’s market. It takes courage to price your home accurately, especially as we come out of the hot market we’ve been in and you worry about leaving money on the table. But doing so is certainly better than the alternative of chasing a market where prices could continue to come down.

Price Reductions

For those buyers who are still in the game despite the high-interest rates, they will likely see a developing trend that signals a market shift: price reductions. Sellers obviously want to avoid situations where they are forced to reduce the price of their homes. Aside from generating bad press, price reductions also mean that a home has been sitting on the market for longer than the seller expected. It not only results in sellers netting less on their sale, but precious time has been lost. If market values continue to come down, as the old saying goes, time is money.

While no Realtor® can guarantee that sellers won’t have to undergo a price reduction, pricing accurately from the start can avoid the issue altogether.

Comparative Market Analysis

As any Realtor® will tell you, one of the key starting points when working with a seller is doing a CMA, or Comparative Market Analysis. Typically, a CMA will go back 90 – 180 days and search for similar properties in their area. This helps sellers and Realtors® understand the local market in order to price a home accurately.

The challenge with using the standard CMA formula in today’s market l is that the CMA has no way of accounting for the significant shift that’s taking place. 90 days ago, the market was very different than it is today. Mortgage rates were around 5% in the heat of the summer market. Things have changed significantly since then.

Weitnauer counsels agents to shorten that window as they do their CMA. The problem, he says, is that doing so likely doesn’t provide enough comparable data to make an informed decision. “Realtors® must know the wider trends in the market. I suggest they look at comps and see what’s active now. Has it been sitting? If so, that will likely indicate that it’s overpriced.”

Communication is Key

No matter what the market is doing, communication remains vital. Realtors® should seek to establish and maintain clear communication throughout the process of working with clients—whether buyers or sellers. In a shifting market, sellers may need more coaching upfront to understand the nuances of pricing their home well. Spending that time will pay off in the long haul.

All things considered, sellers can still anticipate receiving multiple offers and netting a deal with solid terms. Working with a Realtor® who understands how to navigate the changing market will help sellers land an offer they are pleased with.