Don’t Undersell By Overpricing!

A significant number of escrows have fallen through, and over a third of listings have expired in the last six months. Price adjustments are becoming more common, with half of homes selling only after lowering their prices, resulting in an average 18% reduction. The market's mixed signals are influenced by higher interest rates and mispricing.

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The Current State of the Pacific Palisades Real Estate Market

Pacific Palisades real estate statistics could easily be interpreted as a strong “seller’s market” in October 2023. At the current rate of sales, measured over the last 6 months, there is now a 4-month level of inventory of homes available here.

Since most people agree that any housing segment that has below a 5-month level of inventory is one that favors sellers, by that definition we are still clearly in a “seller’s market”.

Challenges in Selling Homes

However, there are numerous signs that this simplistic observation may not tell the full story. One example is that 25-30% of escrows opened in the Palisades this year have fallen out of escrow. In other words, at least one out of four sellers today might expect to have to get into escrow at least twice before successfully selling.

Moreover, many people believe that almost every house listed for sale here does sell. The fact is that over the last 6 months, more than a third of the listings have expired.

Price Adjustments and Market Feedback

Also, there is evidence that price reductions are becoming more common in order to get homes sold. In the last 6 months, an average of 10 listings per month have had prices adjusted lower in response to market feedback.

This means that half of the homes being sold are getting into escrow only after the prices have been lowered. Moreover, those that have then sold received on average 18% less than they were originally listed at.

Navigating a Complex Real Estate Market

So why is the market giving such mixed messages, and what can be learned from them? Has the market changed because of higher prices and significantly higher interest rates? What guidance can someone look to if they really do want to benefit from the still highest-priced market we have ever experienced in the Palisades?

Yes, of course, interest rates now being twice what they were last year has made purchasing almost impossible for growing numbers of eager home seekers. On the whole, prices today are very close to what they were a year ago, which reflects how strong the buyer demand has continued to be.

Importance of Pricing and Other Factors

Pricing is not the only important factor in selling homes. Other critical actions include how well a home is prepared before putting it on the market and whether the seller was guided by counseling from an experienced agent regarding pre-inspections and staging.

There are several reasons why listings end up not selling largely due to mis-pricing. One is simply that many sellers are “opportunistic”, seeking to sell only if a buyer is willing to pay their price.

Another is the mistake of pricing based mostly on what online evaluation systems such as Redfin or Zillow indicate, or comparing with how much someone else’s home is on the market for. Other homes may be priced ambitiously because the agent was overly optimistic.

Optimal Pricing Strategies

From a comprehensive study we did many years ago, it was concluded that if one had a reliable crystal ball that could tell in advance exactly what price a home would sell for, the optimal pricing decision would be easy.

However, the process of pricing this way is rather complex. In brief, it entails setting the price about 1-2% ahead of the direction the market may be trending at that exact time and area, depending also on the price range and how well the home will be presented.

Buyer’s Perspective

Buyers have access to most of the sales data and often have a more accurate sense of the market value than the sellers do. As a result, they will either make an offer that they know is not unreasonable even though quite a bit below the asking price, or they may choose to wait until the price reduction they expect will happen.

Everyone has heard about multiple offers or bidding wars. These are still quite common even with interest rates and current values at relatively high levels. When the seller is fortunate to have the opportunity to issue multiple counter offers, it is not unusual for the ultimate sales price being higher than the initial list price.

If the initial pricing is 5-10% above the theoretical current market level, it will discourage multiple offers. If more than 10%, the seller may not even receive one offer in today’s market.

Final Thought

To set a price too high may occasionally work out well depending on various factors. However, as the statistics above show, that is often a perilous action for an owner to take regarding what may be their most valuable asset.

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