The opening price at which a house is marketed is far more important than lower prices that result from reductions in list price that are made along the way.
If there is one thing certain in the residential real estate business it’s this: as time on market goes up, perceived value goes down. In fact, the relationship between time and price makes intuitively good sense. It’s why Sy Sims (where “an educated consumer is our best customer”) instituted automatic mark downs on clothing based upon how long an item hung around.
But in the home buying and selling business, where there is also an intuitive understanding that time affects selling price, there is little understanding of just how important the relationship is and how it actually plays out in the market. To get a better and more actionable understanding of the time/price relationship I developed Hyperlocal Market Analysis, which has transformed time-on-market into a valuable marketing tool that serves both buyers and sellers.
The following data includes all sales of single-family detached homes that took place in Cedar Grove, NJ, during the 12 months ending June 30, 2012. Sales that took place in 60 or fewer days appear on the left (fast sales) and those that took place in more than 60 days (slow sales) appear on the right.
- The average price of fast sales and slow sales was nearly identical.
- The average discount between the Original List Price (the opening marketing price of a home) and selling price for fast sales was $16,727. The comparable discount for slow sales…those that took more than 60 days to sell…was nearly 3 times that amount ($49,927).
- Nearly one in four fast sales took place at Original List Price or more, while only 1 in 31 slow sales sold for that much.
Conclusion: It’s better to sell in 60 or fewer days.
However, in order to turn time-on-market into a useful tool we have to know more about the variable impact that time has on selling price. The following chart shows the amount that a home has to be discounted from its Original List Price as the months of being on sale pile up. For sellers the results demonstrate how destructive time on market is to the belief that sooner or later a deep-pocketed buyer will come along and pay a price that no one else has been willing to pay. And for buyers, the data provide powerful support for offer prices that are rooted in market reality.
Another thing to consider is this: The opening price at which a house is marketed is far more important than lower prices that result from reductions in list price that are made along the way. That’s because sales agents and buyers are most active during the first 60 days of on sale. It’s when judgements are made as to whether the price/value relationship is based on reality or something else. This means that marketing plans for homes should be front loaded. That’s precisely what I do, as my (credentials and listing presentation will show.
Finally, while this analysis covers only Cedar Grove, every town displays the same relationship between time and sales price although the absolute numbers will be different.
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