How to Price Your Home to Sell in 2023
Looking to sell your home right now? If so, you may be wondering exactly what is happening in the local market.
You are pretty sure thing things are slower than they once were. And rates are up. But is the market crashing?
The first thing to know is that “The best time to put your house on the market was yesterday. The second best time is today.”
With that out of the way, let’s dive in to the peculiar time that we find ourselves in.
Seller and Agent Disconnects
Here in Nashville, TN and the surrounding areas, pristine homes in preferred neighborhoods that are priced perfectly are still going pretty quickly. For the rest of the ‘normal’ homes, longer times on market with fewer showings than in the past 18 to 24 months are normal, and are causing disconnects between sellers and their agents. Here’s why:
Since Covid, home prices have risen at an artificially-inflated rate due in large part to historically low mortgage rates and a glut of homes for sale. Banks were lending at low rates, so buyers said, ‘YES PLEASE!’ Sellers were eager to sell at inflated rates and also said, ‘YES PLEASE!’ It was like a happy hour of free-flowing booze.
Fast forward to now and we are dealing with a bit of a hangover.
According to data from Redfin, May 2023 was literally the best time in the history of the United States to sell a home. Median home prices were never higher than in May 2023. If you sold your home in May, congratulations! If, however, you started looking to sell your home then, you were in for a rude awakening when you put your home on the market in the following months.
Not only have median prices dropped since then, but mortgage rates have doubled in the last year. On top of that, seasonality and supply have conspired to tighten things up even further and cause many buyers to stay on the sidelines.
This is not to say that all homes have felt a squeeze. However, many eager sellers looking to get top dollar have been met with crickets. Showings are down leading to questions and concern from buyers—especially those who saw their neighbors’ homes sell in 3 days for $80,000 over list price back in April or May.
Agents should remind sellers that the Covid Market spoiled us—all of us—and, since then, the market has normalized—or is normalizing as we speak. While tough to see in real time, it is happening. Even worse, some sellers may have trouble admitting they were late to the happy hour and may want to instead have a conversation with the manager (i.e. the Realtor).
Sellers might be wise to essentially remove the last 18 months from their memories when pricing their homes in 2023.
Again, if you have a pristine home in a perfect neighborhood that appeals to multiple buyer personas, you may not feel the squeeze quite the same as as a seller who has been in a home for decades and has seen (or more likely heard about) a steep 15-25%+ appreciation over the last two years.
For the millions of sellers whose homes are not unicorns, you need to prepare them for a neutral market of 30-45+ days on the market. And, according to ShowingTime data, we are back to an average of six showings a month for one of these ‘normal’ homes here in Nashville, TN. Six showings used to be a slow afternoon in Nashville a year ago…
How to Price Your Home in September 2023?
Normal comparative market analysis rules still apply. But if you just look backward the last one, three, or six months, you will still be chasing numbers that will almost certainly over-inflate your sales price causing it to sit on the market.
Instead, perform a normal CMA and deduct fifteen percent to account for the Covid anomaly. If your market was affect less by Covid, subtract less. If it was affected more, subtract more. Admittedly, this is an incredibly-blunt number. So let’s cross reference a few other data points… Hold onto this number for a moment.
Now run a CMA to see what the home might have sold for in late Spring/early Summer of 2021 as things started to take off (using a reasonable median price per square foot if that’s all you can access) and then add back five percent. We are essentially checking to see if we get a similar price by running our numbers from the other direction.
Lastly, go to Redfin and check the offmarket value for your property and subtract roughly five to seven percent.
Cross-reference the three numbers from above (adding more or subtracting less if your market dictated doing so). If you see a common pricing band, you may have your answer and should be able to get a better idea of a realistic sales price range that you can feel good/better about.
This does not take the place of a good comp next door that just sold last week nor does it give you an exact number, of course. But you should be able to 1) erase some of the top-end noise and 2) present some data to your seller so that can make sense of what is likely happening in the neighborhood and cross reference with the hyper-current (like this week or even today) comps that are currently under-contract or that have just sold.
As a recent example, I watched recently as a home near my neighborhood in Nashville did not sell. Nice home in a great location. Small yard. But had a lot going for it.
It sold for $675,000 in 2020. It was re-listed for sale at $975,000 where it sat until it was eventually taken off the market.
Wiping out the Covid bump by taking out 15% off leaves us with $828,750 as a list price. Coming back the other way, the price per square foot in July 2021 would put us around $836,850. Lastly, the Redfin offmarket value was $895,000. If we subtract 6%, that leaves us with $841,300. So we got $828K to $841K. Again, I admit this is a bit blunt and I wouldn’t just run with these numbers blindly.
But what I would do is gather some hyper-recent comps and explain that, in a neutral and normalized market in September 2023, this property should probably be priced closer to $840,000 than the Redfin value of $895,000 or the previous Realtor list price of $975,000 to move quickly. I am positive that is not what the seller wants to hear, but the Covid ‘bump’ in the graph that represents the last 18-24 months is a pricing anomaly that is slowly being erased as we speak. And with it, the dollars that many sellers feel their homes are still worth are disappearing with it. Like Keyser Soze from The Usual Suspects, “…just like that, [it] was gone.”
Let’s also not forget that, in 2020, the average mortgage rate was 3.xx%. I had a lower rate closer to 2.75%, but three point something was the average for the year. With 20% down, the mortgage on $675,000 would have been around $2,388 a month (I did not calculate insurance and taxes). That same house at an asking price of $975,000 with today’s average rate or 7.5% has a mortgage more than double that at $5,454! Buyers are simply staying home and waiting until 2024 when rates are “supposed” to dip again. Can you blame them?
Another factor affecting sellers who missed out on the May, 2023 jackpot sales month is the fact that school has now started. Many buyers have headed inside for the fall and won’t come back out until spring.
That doesn’t mean that fall is not a great time to sell. Many serious buyers come out in fall and winter because they know there is less competition. December can actually be a very advantageous time to sell—if you can stomach having people come through your home during the holidays, that is. Though it is usually slower and is definitely not for the faint of heart, your patience can be rewarded with serious buyers. Just know they are looking for deals and will be looking for the well-priced homes.
Are you selling right now and finding the market good, bad, or indifferent? I’d love to hear from you.
Stephen Parker is a real estate investor and Realtor in Nashville, TN. He can be reached on Twitter and LinkedIn where he posts regularly about finding, funding & successfully self-managing cash-flowing rental properties.