Key Points: The 80/20 Rule for Home Prices

Eighteen months ago we listened to a leading Economist from Stewart Title tell the audience that "In this new market sellers are going to have to sober up..." to the new price reality if they are going to sell their home in a reasonable timeframe. At the time we knew it to be true, but we were still drunk with the upswing of home prices and basically in denial.

What is interesting is the lower market today is broken into two levels, 80% of homes that are overpriced, and the 20% that are priced correctly to sell. In the mind of the buyer, the margin that separates an attractive price to "out of the ballpark" is thin, yet very distinct. The home price cannot be close to the "In the market" price, it has to be all-the-way "In the market".

For example, our neighbor across the street finally found a buyer after being listed for over 9 months. But it took a 20% price reduction during month 8 to make it happen. This seemed extreme until the realtor explained, "The first 17% drop in price was the owner accepting the distinction that their listing was 'On the market' and had to become 'In the market' if they wanted it to sell. The last 3% was typical negotiation."

We checked with our old neighbors who lamented, "It was frankly many months of disbelief before we realized that our home was not worth what we'd hoped. We're still disappointed about the market, but quite happy our home finally sold, and believe it was the right price."

This notion of "On the market" versus "In the market" is important to convey to sellers, and the fine line that separates them. It requires that you study the market and evaluate prices every day to best understand how to properly price the home. A careful analysis of price and condition versus the comps will tell the story.