Pricing the Home

Dropping the Price

It’s possible you’ll need to drop your price before you sell. According to the National Association of Realtors’ 2011 Survey of Buyers and Sellers, recent sellers typically sold their homes for 95 percent of the of the listing price, and 61 percent reported they reduced the asking price at least once.

Every real estate development plan should budget holding costs for the maximum number of months you are willing to carry them. Your decision on this number could be influenced by many factors, including the goal you have for the development. For example, if rebuilding market values is paramount, you may be willing to hold out longer before dropping the price, and therefore budget more for holding costs. Alternatively, if affordability is your primary goal, you may be willing to drop the price quickly. Other factors include the average or median number of days-on-market in your community (the number of days properties are listed before sale, which is tracked by the Multiple Listing Service), funder deadlines, the subsidy available to you and the risk of vandalism to a vacant property.

If your house isn’t selling, ask yourself these questions:

  • What is the average days-on-market for a similar home in my community? Have I passed that point yet?
  • Have any prospective buyers toured the home? What did they say about it? Is the price the real problem, or is there something they don’t like about the house or the neighborhood that you could fix?
  • Is there something they don’t like about the house or the neighborhood that you cannot fix that might force you to reduce the price to make up for it?
  • Has the market continued to decline since you priced the home?
  • Are you getting lookers who cannot qualify for a mortgage? Might this be a marketing problem, in that you are not promoting the home to the right target markets – those who meet your income requirements and can qualify for a mortgage in today’s market?

Because the credit score required to get a conventional first mortgage has risen by about 100 points since 2008, the stratum of the market that is both eligible and qualified has narrowed significantly. Many affordable housing developers built their business around the buyer profile of 50–80 percent of area median income (AMI) and credit scores in the low to mid 500s.

Now they are finding they have to change their brand image and marketing strategies to attract a stronger group of prospective buyers – closer to the 80–120 percent of AMI income bracket with credit scores in the mid-600s, and cash for a down payment. (One nonprofit developer found that it was creating a product that was priced too low to attract buyers with the credit histories required to get a first mortgage – when the developer’s homes were priced below $85,000, none of the prospective buyers had strong enough credit scores to get a loan.)

If after answering these questions, you feel you’ve done everything you can to solve problems that buyers have with the product, or marketing problems in getting qualified buyers to the table, you should discuss price adjustments with your real estate agent.

Many affordable homeownership developers have an established policy for setting and dropping prices. For example, NeighborWorks Green Bay allows for reductions in the asking price of 5 percent for each 60 days the project remains on the market after its initial listing in the Multiple Listing Service (MLS). Click here to view and download NeighborWorks Green Bay’s Value Determination and Asking Price Template.

Solicit your real estate agent’s opinions about price dropping before you set the opening price so you can monitor the listing closely and make price adjustments together with confidence.