Dax’s Data- The Benefits of Strategic Pricing

Dax Nollenberger
- Dax Nollenberger

Dax’s Data- The Benefits of Strategic Pricing

Let’s talk through a hypothetical scenario for a moment. You’re discussing listing price strategy with your Santa Cruz realtor and the agent suggests a price range between 1.3M and 1.4M. The house, based on 5 comparable homes in the area, is worth about 1.4M. While initially on board, a few days go by and you see a comparable house down the street that was originally listed for 1.3M sell for 1.5M after only 6 days on the market. “That’s what my neighbor got for a home just like mine, so we have to list it for 1.5M.” After some major pushback, your agent begrudgingly agrees. You list it for 1.5M and there are crickets, initial feedback is the price is too high. After 10 days, action is still minimal. Your agent starts to discuss a price reduction but you initially refuse. It’s now 20 days in and you have hit a critical point of no return, you agree to reduce the price to 1.4M. While the reduction does the intended effect of increasing buyers’ interest, they are hesitant, thinking “there must be something wrong with the home”. With every passing day the odds of getting an offer for asking decreases. On day 25 you finally do get an offer for 1.36M, 2.5% under the asking price. You have lost the leverage of a “new” listing and accept. 

The decision to overprice can be costly. The difference between you and your neighbor’s strategy is clear. Your neighbor, using a highly competitive price strategy, got significant demand and used the leverage of multiple offers to push the price upward. You listed above market value, therefore not producing strong initial demand, forcing you to decrease your price and give up negotiating power.

While the scenario is hypothetical, this type of real estate story happens all the time. All you have to do is look at the numbers. 

Gone are the days of listing a home for market value and selling it at the asking price. The asking price is no longer the target of negotiation but rather the start. The truth is, a home CANNOT be underpriced. The market would never allow it. Low prices create more demand and force upward pressure on the price until an equilibrium is reached and the home finds its market price. 

The same CANNOT be said for overpricing. As counterintuitive as it may seem for a seller, lower pricing often yields more than a high initial price point. Not only due to the reasons mentioned above but also the negative effect that extended days on market have on the closing price. 

There is a strong negative correlation between days on market and % over asking price. The major influence, in my opinion, is the negative effects that extended DOM (Days on Market) have on a buyer’s psychology. When a house sits on the market, it almost inevitably sparks a buyer’s internal dialogue that goes something like this: “there must be something wrong with the house” and “It must be overpriced.” If they happen to get over those two hurdles, in creeps the doubt that “I must be missing something.”

That psychology is clearly reflected in the data and it has a true monetary impact on what the seller receives for their home. To have both up-to-date data and trends that are hyper-localized, I pulled the data for all single-family homes that have sold in Santa Cruz County from January 1st, 2021 to September 1st, 2021. Below are the compelling findings. 

The one thing you can not do as a seller is put the house on the market for the first time more than once. Once that house is made live on the MLS, the days on market clock begins to tick. The correlation between days on market and % over (or under) asking price is clear, once you hit 20 days on market, the odds of receiving an offer at asking price dips significantly. 

Of the total sales in Santa Cruz County in 2021, 73.45% were sold in the first 15 days. That number jumps to a whopping 86.49% at 30 days! This is to say, most homes sell very quickly in the Santa Cruz real estate market. As you’ll see in the graph below, it’s typically bad news when they don’t. 

Scatter Plot of every home sold in Santa Cruz County from 1/1/21-9/1/21

The data also tells us another thing we know to be true, more expensive homes take longer to sell. Lower price points have a larger buyer pool and more demand so they sell much quicker. Once over 2M, the days on market begins to jump significantly. 

Hiring an agent (or team) in Santa Cruz that understands the local real estate market and knows the benefits of strategic pricing not only has the intangible effect of helping you navigate the emotions of your life’s biggest transaction; it also has a very real impact on how much you can receive for your home. So, if you’re considering selling, give Brezsny Associates a call. 

The Data- Santa Cruz County YTD

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