Tim just posted an interesting set of stats on Redfin, titled Biggest Discounts, and one of them particularly caught my eye. His primary topic was the difference between Final Listing Price and Sold Price and how that varies by area. But what caught my eye was the final chart that showed discounts from Original Listing Price to Final Sale Price. This hit right on a topic I have been thinking about for some time, that I had mentally labeled the Disappointment Index. In a very real sense, it represents the difference between what a Seller hoped to get for their home, and what they actually got after perhaps many months and many price reductions.
Presumably a Seller, in consultation with their agent, has consciously decided what they want to ask, and get, for the property, and has some expectation that that might happen. So to the extent that they start with that expectation, then a subsequent completed sale for less is a disappointment. And a 15% disappointment on a $500,000 house would be a big disappointment – $75,000 not showing up in your bank account would be a very big disappointment indeed.
So here’s the question: why are these discounts so big?
Are the agents not able to estimate market value and expected selling price any better than that? Or are the Sellers not listening to their agents and overriding them?
At what point does the listing agent walk away and let the Seller find a more compliant agent to list the house at a visibly above-market price? Or does the agent take the listing and hope to work it down over a span of time, perhaps several months.
Maybe this Disappointment Index is higher right now because both Sellers and agents are having trouble adjusting to current prices levels that are significantly lower than a year or so ago. But it certainly does impede sales by leading to longer times on market, and lower buyer confidence in what the price really should be.