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Analyzing clues to determine if a home is overpriced

February 16, 2018
By BOB and GERI QUINN - Homing In , Cape Coral Daily Breeze

One of the most important, yet seemingly most difficult things to get right for a lot of people who are trying to sell their homes, is establishing a reasonably accurate initial listing price that will attract interest from buyers. If the initial listing price is too high, the home will most likely sit unsold on the market for a lengthy period of time, unless the seller makes adequate price reductions. This is why it is important for a seller to have a sound and realistic pricing strategy, which involves properly analyzing market data and the various clues that help in determining if a home is overpriced, and by how much.

As we have stated numerous times in this column, when we track various homes in Cape Coral from their initial listing date until a sale is finalized, it is very common for the ultimate sales price to be 10 to 15 percent, or more, below the seller's initial listing price. We also see homes taking more than a year to find a buyer, while ultimately selling for 20 percent, or more, below their initial listing price. There can be a lot of different reasons why a home ends up being overpriced, which is why it is important for a seller to receive as accurate an assessment of the value of their home as possible, so they go into the process with realistic expectations.

Since the housing market is an "opaque market," with a wide margin for error when it comes to determining the value of different homes in different neighborhoods, we utilize a targeted multi-step pricing process. Part of this process involves using a series of pricing checks and balances from different sources as a means of identifying if homes in various neighborhoods tend to sell at a premium or a discount to the overall market. By utilizing this type of approach, we can often make a better determination about the likelihood of a seller being able to attract a buyer at a given price point based on the home's location. It is a fact that some Cape Coral neighborhoods have much better pricing power than others, and knowing this can go a long way towards establishing a more realistic listing price.

When we are working with a someone who is looking to buy or sell a home, one of the keys is trying to determine the reasonable price range for a home. By this, we mean the most likely sales price range at which a home may attract enough of an interest from a buyer to receive a competitive offer. Statistically, in our current market conditions, when the list price on a home comes into this reasonable price range, it will usually go under contract with a buyer within approximately 30 to 45 days, and the actual sales price will typically be within 5 percent of the list price. Here is how this breaks down by price points in our market.

If a home in Cape Coral is listed for sale for $300,000 and under, when it falls within what the market considers the reasonable price range for that home, it will likely go under contract with a buyer within 30 days, or less. If the home is listed for sale within the Cape's "sweet spot" of between $150,000 to $250,000 and if the market determines that the home is reasonably priced, it will go under contract with a buyer within days of being listed for sale and often at full price or higher. The reason we refer to this price range as the "sweet spot" is because over half of all homes sold in Cape Coral in 2017 were priced between $150,000 to $250,000.

For Cape Coral homes listed for sale from $300,000 and above, it is not uncommon for it to take somewhere between 30 to 45 days to attract a serious buyer, once the list price on the home reaches its reasonable price range. As the list price on a home starts climbing to $450,000 and above, this time frame can start stretching out towards 60 days, or more, in large part because the pool of potential buyers at these higher price points is a much smaller group than it is for homes priced below $300,000.

Anecdotally, when buyers contact us to look for a home in Cape Coral, roughly 8 out of every 10 potential buyers set their original price parameters at less than $250,000. This creates a lot of competition between these buyers, which is why a reasonably priced home in the "sweet spot" will fly off of the shelves in a matter of days, but overpriced homes sit on the market unsold, no matter their price point.

From the standpoint of a home being priced in a range to attract an offer from a buyer, we tend to see most initial offers being made somewhere between 8 to 12 percent below the current list price. From this offer range, most sales will be negotiated to within 5 percent of the list price. As we mentioned above, for homes priced in the market "sweet spot" of between $150,000 to $250,000, initial offers from buyers tend to be well within 5 percent of the list price, and they will often be at, or above, the current list price.

So from a seller's perspective, this information about price points and the time frame to go under contract with a buyer, along with the typical range for receiving an offer, is telling you that if your home has been listed for sale at a given price for longer than stated above, there is a very high probability that you are overpriced by at least 5 percent.

This is where it is also important to analyze the type of showing activity a home is receiving from buyers who want to see the home in person. If there is little to no showing activity within ?the first 30 days on the market, there is a good chance the home is overpriced by 10 percent or more, and it will be unlikely that the home will be sold without a fairly significant price reduction. Next week, we will discuss more of the clues that can be utilized by both buyers and sellers to help make a better determination if a home is overpriced or reasonably-priced.

(The sales and market data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, as of Jan. 20, 2018, and it was compiled by Bob and Geri Quinn. It includes information specifically for Cape Coral single-family homes, not including condominiums, foreclosures or short sales. The data and statistics are believed to be reliable, however, they could be updated and revised periodically, and are subject to change without notice. The Quinns are a husband and wife real estate team with the RE/MAX Realty Team office in Cape Coral. They have lived in Cape Coral for over 38 years. Geri has been a full-time Realtor since 2005, and Bob, who also holds a Certified Financial Planner designation, joined with Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.)



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