“Testing the Market” A Seriously Flawed Idea
“As seen in the Real Estate Reality Column in the San Leandro Times & Castro Valley Forum, written by Carl Medford”
Occasionally we encounter sellers wanting to “Test the Market.” Translated: they want to list their home at an artificially high price to see if someone loves their property enough to pay more than it is worth. While this idea might seem OK on the surface, it has serious flaws and can result in financial losses.
- Buyers have extensive access to market data through online real estate portals and can typically gauge approximate values for any listing. Even in a hot market, they will avoid homes they believe are overpriced, assuming the seller is unreasonable.
- The best offers always come in the first few days a home is active. The higher the Days-on-the-Market, the more buyers assume something is wrong. If offers are written, they will usually be much lower than asking price. If a seller lowers the price, offers most often come in even lower.
- If a buyer is willing to pay the seller’s high price, the required appraisal will typically come back low. Most buyers, once they see the appraisal, will want to renegotiate the price down to reality.
- With current COVID-19 showing restrictions, buyers are only viewing homes that make sense to buy.
So where did this idea of Testing the Market originate?
From manufacturers of cosmetics, soap, food products and more who hire marketing companies to go into targeted regions to “test” new ideas. They gather groups of consumers and evaluate reactions to determine product effectiveness and potential pricing. If they fail to get a good response, they will tweak the product and try again in a different region. They continue to readjust the product and keep testing until they either get it right or scrap the idea and move on. If they determine the product is viable, they will again “test” the market by introducing in a few key markets at a low “Introductory” price to gain attention and market traction.
How does this compare to “testing the market” with your home?
Not at all. Whereas a manufacturer has extensive R&D and marketing teams, multiple chances to test a product in varied markets and the ability to “tweak” the product as they go, a home seller has …
One house, one market, one chance.
If you do not get it right the first time, the only true test will be of your patience as you lose both money AND, potentially, any sale.
Carl Medford is a licensed Realtor with Keller Williams Realty and a licensed general contractor. This article is sponsored by the Central County Marketing Association.