REDUCE AND NET LESS | LOS ANGELES COUNTY HOUSING REPORT

[Leona Usaty]

For sellers who must reduce their asking price to achieve a

A successful outcome, they likely will net less at the closing table.

Price Reductions

Carefully pricing a home allows sellers to walk away with the most money possible and achieve success quickly.

For professional track sprinters, getting out of the starting blocks quickly, fast, and first is often the difference in a race. There is plenty of preparation and training to be that runner that is the fastest off the blocks. The initial lunge is crucial and is an advantage that often propels the athlete with the best start across the finish line with arms raised high in the air.

Similarly, when a home initially comes on the market, pricing a home accurately is the difference between a seller raising their arms in celebration within the first few weeks versus taking months to sell and likely for much less. In today’s market, values are slowly declining. The longer a seller takes to properly price their home and secure a successful outcome, the more money they will ultimately lose.

One of the most crucial steps in being able to sell quickly, open escrow, and obtain the highest possible net proceeds from the sale of a home is to carefully arrive at its Fair Market Value. In every price range, homes sit without success, leaving these sellers wondering what in the world they are doing wrong. 39% of all homes in Los Angeles County have been on the market for over two months, and 39% have reduced their asking price at least once. Throwing a price out there just to test the market is not a wise strategy. Instead, carefully and methodically pricing a home is vital to cashing in on the Golden Opportunity in the first few weeks after coming on the market. It would be better to spend several hours coming up with an extremely accurate price than to waste weeks or even months of precious market time.

Due to the high-interest rate environment, the market is lining up in favor of buyers during the negotiation process. Buyers do not want to overpay; they are unwilling to stretch. Accurate pricing is fundamental regardless of the temperature of housing, especially in a declining market. Throwing a price out there just to test the market is not a wise strategy. Ultimately, when asking prices of homes must be reduced in order to secure offers to purchase, it not only takes longer to sell, but sellers also sell for less. On average, the net proceeds check at the close of escrow is less if a price reduction is required.

It is very telling to look at the sales price to last list price ratio. This refers to the final list price prior to opening escrow. These are averages, meaning there are exceptions, but the overall trend is stunning. In Los Angeles County, 67% of all closed sales in October did not reduce the asking price at all. The sales price to last list price ratio for these homes was 99.3%, meaning, on average, a home sold within 1% of the asking price. A home listed at $900,000 sold for $893,700, just $6,300 below the asking price. 12% of all closed sales reduced their asking prices between 1% and 4%. The sales-to-last list price ratio for these homes was 96.9%, and, on average, it took 40 days to open escrow. A home that reduced their list price to $900,000 sold for $872,100, a considerable $27,900 less than homeowners with no reduction. For homes that reduced their asking prices by 5% or more, an astonishing 21% of closed sales in October, the sales-to-last list price ratio was 96.3% after being on the market for a couple of months. A home that finally reduced their price to $900,000 sold for $866,700. Everybody would agree that closing at $893,700 is a whole lot better than $866,700, a mind-blowing $27,000 better.

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