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Harmful Effects from Changing the Listing Price?


With the housing market showing signs of a recovery, sellers may think they can list their homes at a higher price and adjust if necessary. That may not be a good strategy. This is a post we ran last year by Ken H. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research. To view other research from FIU, visit http://realestate.fiu.edu/. - The KCM Crew

The Research

Are there any negative effects from changing the listing price of a property?  This question haunts Brokers/Agents as well as sellers of property every day.  At present, there does not seem to be a consensus answer to this question within the professional real estate community.  Fortunately, this question was scientifically investigated by John R. Knight. Unfortunately, few know the results of Professor Knight’s research.

In Knight, the impact of changing a property’s listing price is investigated.  Additionally, the types of property that are most likely to experience a price change are also estimated.  The findings from this research indicate that, on average, properties which experience a listing price change take longer to sell and suffer a price discount greater than similar properties.  Furthermore, bigger price changes are found to experience even longer marketing times and greater price discounts.  Finally, as for which properties are most likely to experience a price change, Knight finds that the greater the initial markup; the higher the likelihood that any given property will experience a listing price change.

Implications for Practice

Sellers as well as Brokers/Agents should therefore be aware of the critical necessity of getting the price correct from the start.  Sellers wanting to over list will ultimately take longer to sell and will sell their property for less, on average, according to Knight.  Brokers/Agents’ desire to take a listing and get the price right later will ultimately lead to their working harder according to Knight, and they are not doing their sellers any favors.  Thus, an initial and detailed analysis of the proper price is much more critical than many originally thought.

Interestingly, I have found in my own research that the direction (up or down) of the listing price change does not matter.  A listing price increase and decrease both lead to similar results found in Knight’s work – longer marketing times and lower prices.  Therefore, get the price right from the beginning.  It is best for all.

Endnotes


[1] Knight, John, R.  (2002).  Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes.  Real Estate Economics.  30:2, 213-237.

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About Ken H. Johnson

Dr. Johnson is a well-known scholar with numerous publications in real estate brokerage, transactional real estate, and real estate investment. Recent articles of Dr. Johnson’s have appeared in Real Estate Economics, Journal of Real Estate Finance and Economics, Journal of Housing Economics, Journal of Real Estate Research, Journal of Housing Research, The Appraisal Journal, Journal of Real Estate Practice and Education, Journal of Real Estate Portfolio Management, and Journal of Real Estate Law. In addition, he has won several Red Pen Awards for outstanding service and contribution to both the Journal of Real Estate Portfolio Management and Journal of Housing Research. Dr. Johnson is also a past Editor of the Journal of Real Estate Practice and Education. In April 2011, Dr. Johnson became an Editor of the Journal of Housing Research. Additionally, Dr. Johnson has over a decade of applied experience in real estate specializing in the sale of corporate- and lender-owned properties. Dr. Johnson received his doctorate from the University of Alabama in 2001. For additional details, see Dr. Johnson’s current CV at http://realestate.fiu.edu/pdf/Kenneth-Johnson.pdf.

42 Responses to “Harmful Effects from Changing the Listing Price?”

  1. Aaron J Rosen July 25, 2011 at 4:08 pm # Reply

    This post was SO good! I've been telling my sellers this for years now. Listing your price/home high and then dropping the price if (when) it doesn't sell may have worked in the past, but not in our current market! I'm happy to see that others see as well that this is so damaging to someone's chances of selling their home. Great post guys, keep it up, we need this kind of truth out there!

  2. Anne Lyon August 17, 2011 at 10:44 am # Reply

    List at average sold price for similar homes.

  3. Michael Iossa May 23, 2012 at 9:35 am # Reply

    Couldn't agree more. Properly educating a seller regarding market values and listing a house at the right price is one of the most important services a Realtor can provide. Though it can be challenging.

  4. Randy Poll May 23, 2012 at 11:02 am # Reply

    The right price is crucial in this market.   Price it right and sell it fast, for 95 to 100% of list, or you will have to drop the price anyway, and usually much lower than it would have sold for if it had been priced right from the outset.  Great post!

  5. Karene May 23, 2012 at 11:04 am # Reply

    Hi Linda - Is Strategic Marketing a program - if so where does one view it?
    thanks,
    Karen Everhart
    karene@lnf.com

  6. Ant With a Megaphone June 8, 2012 at 11:59 pm # Reply

    The large bank servicers are all offering Short Sale Seller Incentive Programs (cash at closing to the seller) for loans owned (Held for Investment) or loans where the investor allows the bank to negotiate a short sale from start to finish. The amount of the incentives ranges from a few thousand to thirty thousand dollars. Some banks/servicers allow HAFA or other incentives in addition to the amounts offered by the servicer. States with the longest Judicial Foreclosure timelines, including New York (+1000 days) and Florida vie with hardest hit states for the highest incentives.

    Clearly Banks and investors are paying for Short Sales now, rather than risk the wait. Imagine being a borrower who has not made a payment since 2005 who is now eligible for a $30K cash incentive at closing in a state where deficiency must be waived. I sometimes wonder if those borrowers have saved ten cents from the thousands of dollars they did not pay. Do they feel like lottery winners? Now let us see if the incentives make a
    difference by getting more borrowers in default to move on with their life and paying for housing once again. I read somewhere that the borrowers who are spending what was their house payment for consumer goods have provided a boost to the economy. What will happen to consumption when all defaulted borrowers rejoin the ranks of renters?

  7. Ant With a Megaphone June 9, 2012 at 12:20 am # Reply

    In my earlier comment I did not complete my thoughts on Changing List Price on a property. I believe the price should be set at Fair Market for a successful Short Sale. The "Proactive" short sales with high seller incentives offered by large banks and some private investors all have a requirement that the listing price be set by the servicer/investor. There are two reasons for this. The "Reactive" short sales where an agent lowballs a listing price to get showings and offers to submit for short sale approval often feature multiple counter offers, long timelines and a low closing ratios.

    Investors want current "Fair Market Value" for every property to mitigate loss and servicers who work for them run the risk of the investor alleging "improper servicing" if the offer accepted is below fair market. Investors try to make servicers buy back loans at origination value everyday for a variety of reasons. In Nevada, a buyback under these circumstances would cost the servicer more than 70% of the full origination value. That is far larger loss than the difference between a low bid and "Fair Market" as determined by the servicer. Agents are far better off to complete a CMA with recent closed comps and submit with every offer when they disagree with a valuation. Someone out there explain to me why a buyer looking at a $2M property will not go out of pocket $500 and get their own appraisal for the agent to submit with a CMA and Photos of "property conditions"?

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