As referenced yesterday, we're seeing quite a few price changes --- nearly 700 so far in 2009 --- so let's examine why they are happening, and whether they are necessary.

First, most (but not all) price changes are reductions.  Price reductions happen primarily because a house isn't selling at the existing asking price, and the hope is that more interest and activity (and perhaps an offer??) will be generated by lowering the price.  Put another way, a price reduction is an indication that the original asking price was too high.  So.....why is it so important to get your price right from the get go?  Mainly because if you don't, you're house will sit on the market until you do.  That's right --- my slightly scientific analysis (below) indicates that your house won't sell until you get the asking price set properly.

It's a long and arduous task to examine price reductions in detail via our Multiple Listing Service, so I was only able to analyze trends based on a small sample size --- the 60 most recent home sales in Harrisonburg and Rockingham County.  Here's what I found....

The 35 homes that did not reduce their asking price:

• sold in 84 days (median)
• sold for 97% of their asking price (median)
  

The 25 homes that did reduce their asking price:

• sold in 196 days (median)
• sold for 97% of their final asking price (median)
• sold for 93% of their original asking price (median)
• were reduced 6% in price by (median)
  

Did you catch that?  Houses that sold quickly, with no price reductions, sold for 97% of their original (and final) asking price.  Houses that took much longer to sell, with one or more price reductions, sold for 97% of their final asking price.  From this information I conclude that the market, largely, won't respond until you get within a certain distance of the price for which your home will ultimately sell.

Thus, if a home is "worth" $200k, there would be two options:

• List it for $206,000 and likely sell it in approximately 3 months, for 97% of the asking price ($200,000)
• List it for $215,000, reduce it over time to $206,000, and sell it in approximately six months, for 97% of the final asking price ($200,000).

My conclusion for home sellers is that (unless you enjoy the waiting game) you ought to price your home reasonably from the start rather than starting higher (with great optimism) and then later reducing it down to where it should have been from the start.