If you have been doing something long enough there are questions you get asked repeatedly. Sometimes there is a simple answer and sometimes there is no real answer. As a Realtor® there is one particular question I deal with often enough that it deserves special thought and attention.
Home sellers will often ask “If they think the price is too high, why don’t people just make an offer?” The question normally comes up after their home has been on the market a couple weeks, it has been shown several times and no one has made an offer.
One reason may be that prospective home buyers do not want to offend a seller by making an offer lower than what the seller is asking. While this may be the case in some instances I do not believe it is the leading factor. While the desire not to offend a home seller they never met is commendable the emotion to purchase a home you want to live in is greater. This emotion is enhanced even more of the home buyer feels they got a great deal.
I believe that pricing of homes, or almost anything, is a way of categorizing it. Pricing a home elicits emotion. Put a home at $2,000,000 in Berks County and people will talk. If the home is worth the price, as determined by the market, aka the home buying public, it gets positive attention. This positive attention leads to desire and positive emotion. If the same home is deemed not worth the asking price the opposite is true, negative discussion turns into stigmatization. Once a home is stigmatized it is difficult to even get market value.
The home does not have to be in the millions for the same effect to take place. It just makes the example a bit clearer. This same event happens in neighborhoods everywhere. The real estate industry and those in it also add to the emotional speculation, opinion of value, etc…
In the past, BI (before internet), most all home searching was done through display advertising. This limited the number of properties a buyer was exposed to thus limiting choice. An online home search is made up of things like location, bathrooms, bedrooms, home size and yes, price. This is known as a query and normally results in many more home considerations for a buyer. So you see, the internet has further enhanced home price categorization and selection.
Data tells us that most home purchasers tend to buy at the top of their price search range or over. Since most home search queries use pre planted price figures (example; $250,000 to $275,000) a home priced at $249,900 will not even be a selection that shows up on the query for the buyer to preview. If you priced the home at $250,000 it would show up on a search from $225,000 to $250,000 and $250,000 to $275,000. In the days of display advertising the better looking, or more emotionally driven number would have been $249,900.
The point is this…If a home is worth $250,000 and it is priced at $259,900 so there is room to negotiate be aware that you will be competing against homes that are priced in the search category up to $275,000. That home at $274,900 may have some extra things that appeal to the buyer and all things considered equal the additional payment on the $15,000 difference is about $60.00 per month.
This brings us to my assessment on why don’t people just make an offer. Most home buyers have to like the home they are looking at. This means homes have to priced efficiently within their value categories or they will be passed over for the better home even if it costs more because the mortgage payment is not that much different for what they are getting. In other words, emotion or desire to purchase a home that makes someone happy outweighs the $40, $50 or even $100 more dollars in payment per month. We seem to be living in a time where more people buy what they want not just what they need. With interest rates at around 4% it is easier to do with homes.
Note to all home buyers out there…Don’t be afraid to make an offer. You just never know.
Knowledge is power!
Jeffrey C. Hogue
If you have real estate questions or comments please email them to [email protected]
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