The market has improved in the immediate Northern Virginia area for the last two months - when measured by contract activity. April and May 2008 each have seen an increase in contract activity compared to those same two months in 2007. The number of new contracts increased by 5% in May, and the average number of days a home was on the market decreased from 118 to 84. To get to those numbers though, the average sales price came down 13.3%. Nowhere is the impact of falling home prices more apparent than in Prince William County. Year-to-date contract activity there is up almost 75%, but the average sales price is down almost 30%. When the price is right, there are buyers out there.

So what is the "right" pricing strategy to get a home sold in today's market? We have always known that the first few weeks a home is on the market are the most critical, and a seller who puts his or her home on the market at a price that reflects the reality of the market is likely to be rewarded. But given that fact that close to half of all homes going under contract have had at least one price reduction before a contract materializes, it is safe to say that not every seller is using the best approach, right out of the box, to get the best possible offer on their home.

We took all of the homes that went to settlement in May and put them into two categories: those that did not have a price reduction before getting a contract, and those that did have to make one or more price adjustments before a buyer showed up. There are stark differences, as the chart below shows.

Those homes that came on the market at the "right" price, (those with no price reduction) fared better in every respect than those that had to drop their price.

On average, they sold in significantly less time (50.6 days vs. 141.4). They sold at a higher average price, despite the long-term trend that higher priced homes generally take longer to sell. They paid a subsidy less often, and when they did pay a subsidy, it was for a lower amount and for a smaller percentage of the sales price. And most significantly, the ones that got it right sold for 96.2% of their original list price. Those that over-reached ended up having to make price drops that averaged almost 10%, ultimately selling for less than 86% of the original list price.

"Testing the waters" with a list price that is too high, or expecting that the market will "just catch up to me" are risky strategies in this market.

How does the market look so far this year? As the table below that summarizes the key indicators we track indicates, the answer very much depends on what area one chooses to look at. In general, the closer-in areas are still a bit sluggish in terms of contract activity, but prices are holding up fairly well. Further out, prices have really come down - but buyers have returned to the market looking for bargains.