Real estate agent Stephen Freudenberg recently represented a homeowner in Atlanta who was eager to sell. A just-closed comparable sale had fetched $320,000.

“Most sellers would want to start at $325,000,” he says. But he advised his clients against it for one simple reason: Mortgage rates were high, with the 30-year fixed-rate mortgage just below 7%.

While sellers don’t always focus much on rates, he believed strongly that this was something his client should take into account.

“Changes in rates bring changes in buyers’ buying power,” he explains. “Every dollar counts.”

So instead of shooting for the stars, Freudenberg persuaded his client to list low at $315,000. They got “a bunch of” offers and wound up accepting one for $325,000, going from listing to closing in less than six weeks.

“If we had listed for $340,000, it would have sat for months and we would have reduced the price and probably eventually gotten $325,000, but it would have been super stressful for the seller,” he explains. “As a seller, yes, you have the luxury of not thinking about [rates]. But if you’re smart, you should be sensitive to higher rates. They shrink your buyer pool.”

What high interest rates mean for home sellers

Mortgage rates, which topped 7% last fall, have remained higher for longer than many experts expected. It’s a tough break for homebuyers, who are still contending with slim pickings and lofty prices.

While home sellers typically don’t worry about rates as much as buyers, this doesn’t mean sellers can brush off the conditions that buyers are facing in the market now.

For one, if sellers are also buying, they might face getting a mortgage at those same high rates. But even if they aren’t planning to purchase a property immediately, they should still keep those high rates in mind when pricing their house.

For context, Realtor.com® Chief Economist Danielle Hale points out that the median monthly mortgage payment on a house in May 2023 was almost double what it was two years ago—$2,216 versus $1,262—before rates began to surge.

Put another way, from mid-2016 through the end of 2019, monthly mortgage payments as a share of income averaged about 21.3%. But when rates rose, it made those monthly payments balloon to greater than 36% of buyers’ incomes (taking into account listing prices on Realtor.com).

While some homebuyers have been able to adjust, Hale says, “higher mortgage rates are one of the big reasons that home sales are sluggish right now. Higher mortgage rates not only drive up costs for potential buyers, they change the calculation for existing homeowners hoping to use a mortgage to trade up. As a result, higher mortgage rates have dampened both supply and demand in today’s housing market.”

So what does all this mean for home sellers?

“It’s good context for sellers to think about what their asking price works out to in a monthly payment,” Hale says. “I don’t know if sellers need to have empathy, but they may want to have some context.”

The risks of pricing too high

Pamela Grunstein, an agent with the Francie Malina Team, adds that many factors go into determining the right price for a home, from school district to home size to number of rooms, or whether the property is on a busy street or in a flood zone.

In a hot market, financing costs for buyers might seem like the last thing that homeowners should take into consideration, she acknowledges. But they should.

“Absolutely the discussion about mortgages comes into the conversation with sellers,” she says. “Sometimes they listen, but sometimes they just really focus on the price they want.”

Yet homes that are priced too high today will likely attract very few bids, if any. And once sellers have missed that window of opportunity, they hurt their own chances of selling at all.

“Buyers are accustomed to seeing properties get offers within three days,” Grunstein explains. “If that doesn’t happen, they wonder what’s wrong with the house.”

How to price a house

In the same way that buyers are advised to “rate-test” their buying power whenever mortgage rates change, home sellers should check how fluctuations in rates affect their home’s monthly mortgage payment at their desired asking price. (You can crunch those numbers with an online mortgage calculator.)

You might learn, for instance, that at a certain interest rate and certain asking price, your home’s monthly payment reaches a certain key threshold—say, it might edge from $2,090 to $3,050—which might be just enough to persuade some homebuyers to walk away.

“We always try to make sure sellers are aware of what the monthly cost will be,” Grunstein cautions.

Julie Chang, a real estate agent with Pacific Sotheby’s International Realty in San Diego, suggests sellers consider being mindful, if not empathetic, to homebuyers’ high mortgage rates. In the long run, this will help them sell their house.

“There is lots of data showing that if you price at market, or even under, you will drive demand because you look reasonable,” she says. “It’s all about optics. Then you let the market take the house where it’s going to go. If you price high and you turn people off, there are going to be people who won’t come look at your property because they think you’re greedy.”

In a high-interest-rate environment, Chang also encourages sellers to consider offering concessions such as a rate buy-down, which might work out to the same amount of money for the owner, yet be more beneficial to a buyer than a price reduction.

Another option might be to help pay for closing costs. You might even consider seller financing to help your buyer sidestep today’s high mortgage rates entirely, while providing you with some nice income for the foreseeable future.

Another area where seller flexibility is key during high rates is with repairs.

“When you consider that buyers are so stretched, they probably won’t have any cash for repairs once they close,” says Chang. “If you’re not willing to work with a qualified buyer who is pointing out that there’s something wrong with the roof, for example, if you choose not to be reasonable and offer a concession, you might lose one of the few qualified buyers out there. You have to act like you’re aiming for a win-win. Or you can take your chances, push hard for the highest price you can, and risk falling out of escrow.”

And if you’re willing to offer some options to buyers to ease the burden of high interest rates, make that clear in your listing.

“Market it,” Chang says. “Stand out against other properties.”

The post With Mortgage Interest Rates So High, How Should Sellers Price Their House? appeared first on Real Estate News & Insights | realtor.com®.