Purchase Price Reductions in Real Estate (In-Depth Guide)

Home Selling

Purchase Price Reductions in Real Estate (In-Depth Guide)

July 11, 2018 | by Andrew Schmeerbauch

Purchase Price Reductions in Real Estate (In-Depth Guide)

Are you wondering about purchase price reductions in real estate? Perhaps you’ve heard that they are the kiss of death to any sale, or maybe your home is sitting stagnant on the market, and you are wondering if a reduction is a right strategy for you.


Whatever your questions, we’re here to guide you through understanding exactly how purchase price reductions work, when to consider them, and their ramifications for the sale of your home and your bottom line.


What is a Purchase Price Reduction?


Purchase price reductions occur when a home has been stale on the market for a significant amount of time, and the seller and listing agent agree that it is in their best interest to drop the price to reinvigorate the process.


The exact timing of purchase price reductions depends greatly on the individual market that the listing is in and usually occurs after a major overhaul of the home’s cosmetic features and marketing strategy. Typically, a reduction will occur after 30, 60, or sometimes even 90 days with no offers on a particular listing.


When to Consider a Purchase Price Reduction


Reducing the listing price of your home should not be the first thing you do to stimulate a sale in a stagnant market. As mentioned, you should always consider things like updating the cosmetic features of the home (e.g., installing new countertops in the kitchen, renovating the bathroom, or even power washing the driveway), revamping its marketing strategy, and holding more open houses and showings before dropping the market price.


By investing a little time and money in your listing at its original asking price, you are far more likely to receive a competitive offer than if you just immediately drop the price.


However, sometimes it is time to bite the bullet and partner with your listing agent to reduce the asking price of your home. Need help? We’ve got you covered.


How Much Should You Reduce the Listing Price?


When, after speaking to your listing agent, you both decide that it is in your best interest to pursue purchase price reductions, the conversation might explore the following statistics:


According to the National Association of Realtors, if a listing isn’t getting any showings at all, the price is normally roughly 10% too high. Interested parties might notice the listing because of its location or marketing photos, but once they notice the price, they will balk and bail.


Likewise, when a home is getting lots of showings, but no offers, it usually means that it is about 5% too high, price-wise. This means that the home’s location and features are just enough to get prospective buyers in the door, but buyers won’t feel like making an offer if the price is too high.


The national average for price reductions is approximately 5%, but depending on the steepness of the original listing price and the staleness of the local market, initial reductions can vary from 2.5% all the way up to 10%.


The important thing is to ensure that, even with a reduction in price, your listing is still priced competitively for its location and features and that you are not just “giving it away.” To reach this happy medium, between likelihood to sell and return on investment, be sure to consult with your listing agent.


Are there Any Other Price Reduction Strategies?


Yes! Instead of simply popping a “price reduced!” sticker on the for sale sign and online listings, listing agents and sellers can collaborate to make a reduced price home seem attractive. Let's dive into how.


Create a Sale


Sometimes instead of outright reducing the listing price, it’s a better idea to directly offer some sort of special on your listing instead. For example, you might decide to offer a $15,000 discount if the home is under contract in the next 30 days or perhaps a $20,000 discount on all offers made.


The psychology behind this is that merchandise on “sale” has a better perception than “discounted” merchandise, as consumers tend to think that sales are just a normal part of business, but discounts point to flaws in the product.


Relisting your HomePurchase Price Reductions in Real Estate transactions


If the need for a move is not urgent, for example, an older couple wishing to downsize rather than a family moving for a new employment opportunity, sellers always have the option of simply removing their home from the market for a cooling off period.


Real estate tends to be more competitive in the warmer months, as many Americans choose to move during the summer to avoid disruptions in the school year. Instead, by relisting the home (at a lower price!) during this season, your home will typically be seen by a brand new demographic of buyers. People will also see it as an entirely “new” listing at that, so you can avoid some of the stigmas of trying to sell a reduced price home.


One caveat: some Multiple Listing Services (a database used by Realtors to find properties) have certain rules about when a listing is removed and reentered, so make sure to follow them.


What are the Effects of Reducing the Listing Price?


Sometimes purchase price reductions make buyers feel heard – sometimes they make buyers feel suspicious. Here’s how buyers typically react:


Pros of Reducing the Listing Price


When you drop the price of your property by 5%, the handful of buyers who attended open houses and showings, but felt the home was out of budget, might now scramble to make an offer – excited that their dream home is now within their reach.


It might even be worth it to reach out to the people who seemed very interested but put off by the price, as they might also make an offer above your intended reduction to stay competitive.


Cons of Reducing the Listing Price


Sometimes price reductions bring more suspicion than excitement.


“What’s wrong with this house?” and “Why is the seller so desperate to get rid of it?” are two questions that you typically hear after the initial price drop. The secret to avoiding this is all about the marketing. Be transparent about the home’s features and focus on the needs of the buyers listed in the pros section.


Need help with the price reduction process? With great reviews and a flat rate price, you’ll wonder why you didn’t go with Clever earlier. Call us today at   1-833-2-CLEVER or fill out our online form to get started. 

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