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How Sellers Can Walk the Home Pricing Tightrope

NEW YORK ( TheStreet) -- If you put your home on the market, how long should you stick to your asking price before dropping it?

Although some homes are snapped up as soon as they go on the market, occasionally going for more than the asking prices as buyers get into bidding wars, that's not usually the case. After years of lackluster sales and sinking home prices, today's sellers are wise to recognize they're not in the catbird seat.

But conditions are definitely improving. Realtor.com, the website of the National Association of Realtors, says a decline in the number of homes for sale, coupled with low mortgage rates and growing consumer confidence, has reduced the amount of time the median home spends in the for-sale listings to 108 days in January, a 9.24% drop over the past year.

Buyers are grabbing homes sooner because there are fewer to choose from.

"In January, the total number of single-family homes, condos, townhomes and co-ops for sale in the U.S. decreased by 16.47% from one year ago, dropping to its lowest point since January 2007, when Realtor.com began collecting this data," the company says. "The significant year-over-year decline in homes for sale shows that the real estate market has worked through much of its excess inventory and, if these conditions continue, sellers are more likely to receive their asking price."

All this news could cause some sellers to dig in their heels in hopes of getting top dollar , but they'd be wise to pause for a reality check.

First of all, home prices remain far below their peaks of five or six years ago. Many homeowners who bought then are still underwater, owing their lenders more than their homes are worth. That's one reason the inventory of homes for sale is relatively small -- those homes can't go on the market unless the owners have cash for the difference between the debt and sale proceeds.

A home put on the market at a price buyers perceive as too high is unlikely to sell no matter how long the seller waits. So sellers really need to pay attention to prices of recent comparable sales . Buyers do that and aren't likely to bid more than the going rate.

Also, the seller who wants to "hold out" may not get the best service from the real estate agents, who don't want to waste time showing homes priced too high to sell. Since agents get paid only after a sale closes, they will direct buyers toward the homes most likely to sell, even if they are cheaper and will thus produce slightly lower commissions.

Often, a seller gets only one crack at each prospective buyer. The shopper who liked the home but was put off by a high price may find another home by the time the owner of the first one drops to a more realistic price.