Contrary to popular belief in Toronto, not every home or condo flies off the shelves in less than a week. In some cases, properties can sit on the market for weeks or even months. This can happen for a few reasons and you might be surprised to learn that most of these reasons aren’t necessarily bad.
For one, the condo market doesn’t typically employ the ‘bidding war’ strategy, where you price low and try to pit buyers against one another. There’s usually enough inventory in the condo market to keep prospective buyers from paying a large premium for a single unit.
In terms of the housing market, despite there being what seems like insatiable demand, not every seller is comfortable with the bidding war strategy. There’s always a risk involved as it’s not unheard of for offer night to pass without a single offer. Some sellers prefer to price on the high end of the spectrum and wait for the right buyer to come along and make an offer.
Then, of course, you just have some sellers who have posted what are essentially unjustifiable list prices.
Whatever the case, there may come a time when these types of sellers should heavily consider a price reduction. Every case is different and there’s no exact science behind it, but following these four key factors for your specific set of circumstances will help you identify if and when the time is right for a price reduction.
1. Time – is it on your side?
Sellers who don’t ‘have to’ sell or don’t have specific time constraints have added flexibility and can afford to keep their original price until they are satisfied. There’s no real undue pressure. But what happens if you’ve purchased a new home and need the money from your sale to fund the purchase? If your home doesn’t sell in good time, can you carry two homes financially? What will those costs amount to?
A purchase may not be your only issue regarding time. Perhaps you’re trying to avoid large mortgage penalties by selling by a certain date, or have a big event like a wedding in the upcoming months. How much is your time and stress in those weeks worth to you?
It’s important to analyze how much pressure you’re under in terms of timing and other engagements. If you’re heavily constrained, you may need to adjust your price much sooner than someone who has no significant external pressure.
2. Negative feedback
Buyer feedback always needs to be taken with a grain of salt. Some agents refuse the practice altogether. It can be difficult to tell if someone is being honest or just feeding you a standard line or two. To protect yourself, don’t allow one or two negative comments to weigh heavily on your mind, especially as it pertains to price.
However, once in awhile you may see a pattern start to emerge. If you’re constantly getting the same negative feedback regarding price, there could be good reason. It’s unlikely all of these agents have staged a coup against you, and more of a sign that a price reduction may be in order.
3. No action
This one is relatively straightforward. Most listings, including some of the overpriced ones, typically get a rush of showings once the property hits the market. After that initial rush, the number of showings can be quite telling. If it goes absolutely cold with no action for a week or two, you’re probably overpriced. Conversely, if you’re still getting a decent amount of action two or three weeks in, you may want to stay the course for awhile longer.
What’s considered a ‘decent’ number of showings will depend on property type and location. For example, condo units don’t typically draw the same amount of action when compared to detached homes. Research helps, and a good agent should be able to help you decipher when things have become too stagnant.
4. Days on the market (DOM)
This is not as straightforward as it sounds. Some agents will use a simple but strict “x” number of weeks rule, and then will suggest a price drop. For eg. If the property doesn’t sell in 3 weeks, it’s time to drop the price. The problem with that is that there are some neighbourhoods and buildings that have a fairly lengthy average DOM. You don’t want to sell yourself short and leave money on the table by adjusting too early. Research is critical!
I recently sold a condo in the west end, where the average DOM was about 4 weeks. The units were selling pretty close to list price, even while sitting on the market for a month. After about 3.5 weeks, my client and I had a discussion about a possible price adjustment. We analyzed the numbers, and given that we were still getting a fair amount of action, we chose to trust our original pricing. A week later, it sold just short of list price.
Hopefully you never find yourself in a position where you need to consider a price adjustment. It’s not a fun thing to do. But should you find yourself in a position where your property is sitting on the market past the first week, and you’re contemplating when’s the right time to adjust the price, consider these four factors. They should help you come to the right decision for your sale. Knowledge is power.