So what does Months of Inventory mean?? This is from an article that talks about pricing a home….
“If there are eight months of inventory on the market, the probability that a seller will sell in any given month is 12.5 percent. The probability that the seller will not sell is 87.5 percent. Consequently, sellers who want to place their properties under contract must position their property in the marketplace where they will be in the best 12.5 percent in terms of value, which is a combination of condition and price. If not, their listing will sit on the market until it expires or until they lower their price sufficiently to motivate a buyer to purchase it.”
When you are presented with a list price for your home when interviewing Realtors, make sure you understand how they came up with this price. If they are using comparables from over 6 months ago, they need to be adjusted to the current market conditions. It takes A LOT of research and analysis to come up with a price that will sell a home without leaving money on the table these days. In the “good ole days”, if you priced a home too high you just had to wait until the market appreciated up to what your home was at. Today, if you price it too high, you risk sitting on the market for a long time. If you do gradual price drops, you may also just be chasing the market pricing curve rather than getting in front of it.
I have a nifty program that will take the comparables and print out a nice color Comparable Market Anaysis (CMA) with the recommended price. It takes me about 15 minutes to generate one of these. But, chances are the price suggested would have been something to use in our market over a year ago and is just too high in today’s market.
I recently did a price analysis for a homeowner in San Luis Obispo. I spent nearly three hours analyzing comparables and other data. Another Realtor on my team also worked on the pricing and we then got together and presented each other with our analysis and then debated our reasoning.
Another Realtor had presented the homeowner with their recommended price which was considerbly higher than what we were proposing. That creates a bigger challenge as we didn’t know if the other Realtor was trying to “buy” the listing or that their price came from a quick analysis of compables. For this particular home, the Months of Inventory was over 12 months too.
If you look at the facts, we’ve had over 6,000 price changes happen over the last 6 months. I’m sure that most of the Realtors believed that the price they were suggesting would bring a Buyer but MANY were incorrect. There is nothing magical about having Realtor on a business card or having x amount of years of selling experience that’s going to determine the price a home will sell at. You have to do a thorough analysis of the market, comparables, Months Of Inventory, location, condition, competition, marketability of the home, presentation, etc. to find the price that it “should’ sell at. But it doesn’t stop there. When a home goes on the market, you need to keep looking at what’s going on in the market to see if you are still priced to sell.