The Impact of the Asking Price on the Time it Takes to Sell

The data shows that pricing your home correctly is the most important thing you can do to maximize your chances of selling quickly. An analysis of the last 5 years of home sales in Arapahoe County shows that, depending on how hot the market is, anywhere from 14% to 35% of homes are significantly overpriced. On average, these overpriced homes take upwards of 6 times as long to sell as homes that are priced reasonably from the start.

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We repeated the same analysis for many other counties in the Denver metro area and the results are very similar. Therefore, we can be confident that the findings presented here apply almost anywhere in the Denver metro area.

Methodology

For each home sale, we know the original asking price, the final asking price and the sale price. Based on this information, we can group each home sale into one of three categories:

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1. Homes where the final asking price is the same as the original asking price, which means that the asking price was never changed. This indicates that the asking price was likely set at 
a reasonable value.

2. Homes where the final asking price is below the original asking price, which means that the asking price was reduced at least once. This indicates that the home was initially overpriced. 

3. Homes where the final asking price is above the original asking price, which means the asking price was increased at least once. This indicates that the home was likely priced significantly below market value.

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Before we dive into how homes in each of these three categories fared, we first need to understand what the market conditions were 
at the time at each sale. To do so, let’s analyze how market conditions have changed over time in Arapahoe County.

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The graph below shows how the median sale price has changed in Arapahoe County over the past 5 years:

The graph shows that the Arapahoe County real estate market has gone through five main phases since June 2018:

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1. From June 2018 until the start of the pandemic in mid-March 2020, prices were stable to slightly increasing.
2. Then, almost immediately after the pandemic hit, prices started 
to rise dramatically. This trend lasted for almost two full years 
until March 2022, when higher interest rates started kicking in. 

3. These higher interest rates caused prices to decline between March 2022 and February 2023. 

4. Prices then rebounded significantly between February 2023 and May 2023.

5. Finally, prices have stabilized since June 2023.

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Because market dynamics have differed across each of these five phases, the best approach is to analyze home sales in each phase separately. For each phase, we want to know:

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1. The fraction of homes that fall into each of the three categories. 

2. The median and mean days on market for the homes that sold in each category. (If the median days on market is 10, this signifies that half of homes went under contract within 10 days.)

3. The median and mean percent difference between the sale price and the original asking price.

Results

Phase 1: Stable to slightly increasing prices (June 2018 - March 2020):

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Phase 2: Rapidly appreciating prices (March 2020 - February 2022):

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Phase 3: Declining prices (March 2022 - January 2023):

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Phase 4: Rebounding prices (February 2023 - May 2023):

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Phase 5: Stable prices (June 2023 - present):

Conclusion

There are 3 main takeaways from this analysis:

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1. Homes that are overpriced tend to take significantly longer to sell than homes that are priced reasonably from the start. These overpriced homes can take upwards of 6 times longer to sell.

2. Homes that are priced reasonably tend to sell for around the asking price. On the other hand, overpriced homes tend to sell for significantly less than the original asking price. In today’s market, this decrease is typically around 6%. This means that an overpriced home with an original asking price of $500K would have a 50% chance of selling for less than $500K * 94% = $470K.

3. When home prices are rising, the fraction of homes that have at least one price reduction tends to be lower and vice versa.

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