The Dizzying Dance of Pricing with Three Performers

By Bill Primavera

The Home Guru

As published in The Examiner in Westchester and Putnam

 As deadly serious as the real estate business can be, especially today, situations can become interesting, even humorous, where so important a matter as money is concerned.  The feature event about money, of course, is the dance around the price at which a house should be listed and sold, and the three principal performers are the realtor, whose job it is to convince the seller that a house should be priced at fair market value, the seller who sometimes wants the house to sell at a price he/she “has to have, and not a penny less,” and the buyer who wants to pay a price that he/she considers favorable “and not a cent more.”

We all have our scripts on these matters. The realtor is prepared to respond in a certain way when the seller learns that the fair market value of his/her house is much lower than expected. Even though the realtor can produce a ream of listings that have sold in the past three months that compare directly with the home in question, the seller might feel that there’s something very special about his/her home that demands a higher asking price.

“I must have such and such a price,” the homeowner will say.  The realtor, whose job it is to serve the seller in pricing the house right, will ask, “Why is that? Why do you need to have that price?”  The seller will usually respond honestly with some reason like, “I want to buy my retirement home without having to take out a mortgage.”  The realtor will then empathize with the situation by saying, “Yes, that’s understandable.  We would all like to buy a house without a mortgage.”  The better realtor will add, “But the simple truth of the matter is that your house will not sell at the price you feel you have to have.  The decision you have to make is whether you want to sell, or do you want to stay?”

The dance continues with some homeowners countering, “Well, let’s start at my price just to see if there’s somebody out there who agrees with me on its value.”  Then, again, the realtor may be politely asked to leave so that another appointment can be made with a competing realtor who will agree to list the house at the price the seller wants.  Sometimes, perhaps unkindly, this can be referred to as “buying” the listing.  This is an unfortunate situation for the seller, actually.  As educated as the average consumer is now, with 78 percent of all home seekers searching the internet before calling a realtor, the buyer knows the price at which a house should be listed. If a realtor agrees to list it at a price over market value, the house can become stigmatized when first listed, then will just “chase the market” from that point on.

There is a formula for pricing a house that is tried and true which more realtors are using in helping sellers to agree upon the right price at which to list their homes.  At 10 percent above market value, the home will get no showings and no offers; at 5 percent above market value, the house will get showings but no offers;  at market value, the house will get showings and an offer;  at 5 percent below market value, the house will get showings and may get more than one offer; and at 10 percent below, there could be a bidding war. Especially in today’s market, as opposed to the height of the market three years ago when price seemed to be no object, it’s all about price…a lower price.  There’s no house, no matter how challenged, that won’t sell at the right price.

If the seller refuses to accept the right price, there is nothing to do but wait as the market determines what the price should be for the house to get sold.

Sometimes national headlines can throw any formula for pricing a home to the wolves.  These headlines don’t necessarily reflect true market conditions or may not translate to our local markets here in Westchester in Putnam. For instance, just last week in The New York Times and in the Associated Press, headlines heralded the news that “Home Prices Are Beginning to Rise in Nearly All Major Cities.”  This prompted a spate of phone calls between prospective sellers, agents and buyers, both positive and negative. The sellers seemed more likely to insist on a higher listing price, and buyers were anxious to get off the fence before prices continue to climb.  But such pronouncements demand closer examination.

Standard & Poor’s Case-Shiller Home Price Index reported improvements in 18 of 20 cities it tracks, up from eight in May, four in April and only one in March.  It reported a 3.8 percent increase in San Francisco, 2.6 percent in Boston and 4.2 percent rise in Cleveland. Even the epicenter of the real estate crash, the Sun Belt, showed an increase in price, with Phoenix reporting a 1.1 percent gain. However, these prices were not seasonally adjusted, and there are other factors to consider that would moderate the news.

Analysts report that some of the increase may be due to the rush for first-time home buyers to receive the $8,000 tax credit before the expiration of the program in December.  And, there are unknown factors such as foreclosures that also should be considered.  Prices were pushed down last year by an abundance of bank-owned properties coming on the market. This spring, however, fewer foreclosures have prompted bidding wars. But with unemployment approaching 10 percent, there are probably more foreclosures in our future.

Responding to a question by this columnist about the significance of this report, P. Gilbert Mercurio, Chief Executive Officer of the Westchester County Board of Realtors and the Westchester-Putnam Multiple Listing Service, said, “It seems not well known that there is seasonality in pricing and that these July-August closings reflect market activity in the spring market - which is always the busiest and which results in the highest prices for the year.  So I can't get too excited over a report of price increases, because that's the normal pattern.”

Perhaps what can be assumed at best by the Case-Shiller report is that homes have stopped their slide in price, but that no one can count on significant price increases in our near future.  So the dance around listing and offering prices should continue on the same stage for a while.

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