Lots of sellers tell their listing agents, "Look, we can wait. We’re not under any pressure to sell," when they insist on slapping a too-high asking price on their property. (Of course, 2 or 3 weeks later those same sellers are screaming at their listing agent about why their house hasn’t been shown, but that’s another blogpost.)
There are a number of hidden ‘gotchas’ in the ‘list high and wait’ sceanario for sellers. The biggest is the appraisal issue. You may think your house is worth $400,000 (and yes, you say you’re real motivated so you’ll take $385,000). But all the other houses similar to yours, in terms of square footage, acreage and number of bedrooms and baths, that have sold recently had selling prices between $290,000 and $320,000. If you have a deal at $385,000, the appraiser can only value your house based on the comps, so the appraisal value (which is the value that the bank will lend on) may only come out at $310,000. In the current lending environment, banks are being very conservative about appraised value, and buyers are very unwilling to make up a difference above the appraised value. So even though you have patience, and your house has special features that you think makes it worth more than those other houses, you’re essentially hostage to those sales unless you’ve nabbed that rare bird, an all cash buyer.
If a market is trending down, those appraisal comps over time will also trend downward. Appraisers have time limits, depending on the lender, of how far they can go back to look at comparable sales. (Traditionally this has been 12 months, but in the current lending environment some lenders have tightened up that window substantially.)
When I was trying to sell my condo in Florida, a friend who is a real estate agent here and weathered the 80’s downturn, advised me, "If a market is heading down, you want to lead it down, not follow it down." Wise advise. For the first 12 months that the condo was on the market, I instructed my broker to always make sure I was the lowest priced 3 bedroom 2 bath unit on the market. I stayed a few thousand below the nearest competitor, but still didn’t have a sale. As inventory rose, prices kept slipping down, and I’d move my asking price down in $5,000 or $10,000 baby steps. After 16 months on the market, I was at $339,000. The market was slow as molasses. I told him, "Reduce the price to $299,900 and move it." I had a full price offer of $299,900 by the end of the day, and 2 backup offers the next day. The sale closed 3 weeks later.
The other sellers in the condo complex with 3 bedrooms units listed at $379,000 or $399,000 probably hate my guts. The reason is that my sale at $299,900 reset the appraisal bar. Even though there may have been some sales in the upper $300’s in the last 12 months, to a lender the most recent sale of a comparable property is the most important.
Also, in the current environment, a buyer’s biggest fear is that they’re buying at the top of the market and prices will fall. A great way to overcome that is to set your asking price slightly below recent market value, and then negotiate a bit from there. That can make buyers more comfortable that even if the market drops by 5% or 10% they’re not going to take a bath.