Testing the water and trailing the market
Sam Schneiderman, broker owner of Greater Boston Home Team discusses the pricing strategy known as “testing the market.”
Assuming that a property is properly marketed, when it first comes on the market all agents and buyers have their eyes on that property. Today, that means that the brain that is processing the information on the screen quickly decides whether or not the property is of interest and worthwhile to look at, based on the property’s features and price.
Since the average attention span in the Internet age seems to be the length of time that an image is displayed on a screen, an overpriced property is likely to fade from memory as quickly as the next home appears on the screen.
Sellers that try to “test the water” with a high price often find that they need to adjust their asking price later in order to attract interest in their property or sell within their desired time frame.
In a rapidly appreciating market, like the five years before 2005, a seller could set a high listing price and wait. As the market appreciated and more buyers came into the market, sooner or later the market might rise to the asking price and buyers would decide it was worth seeing. Either that, or a slight price correction or two often did the trick.
In a stable market, it takes many small adjustments or a few big ones to get to a market price.
In declining markets, the challenge with “testing the waters” (if you can even call it a strategy) is that if the market fluctuates downward (seasonally or due to overall market conditions) at the same time that the seller lowers the price, the seller is merely trailing the market with price reductions. (In other words, for each of the seller’s price reductions, the market also steps down a similar amount.) Although the seller is lowering the price, she’s really just keeping the same overpriced relationship between her property and the rest of the market. As a result, buyers still view the property as overpriced, which results in less showing activity and fewer offers, if any.
When I look into the pricing history of many properties that have been on the market for a long time, I usually see property that was listed at a high and asking prices that inched down over time. When my buyer-clients make offers on those properties, they are typically reluctant to make high offers because they assume that the seller may finally be motivated, desperate or they are concerned that other buyers passed on the property.
Over the last 6 months, even in communities perceived to have a shortage of property for sale, at least 16 percent of the single family listings and 18 percent of the condo listings expired, including listings that expired were re-listed. Other communities with more inventory have even higher listing expiration rates.
Sellers….. Did “testing the water” or “trailing the market” working for you?
Buyers…. What is your reaction when you see an overpriced property?
