Bayesian Reasoning Applied to House Selling: Listing Price

by byrnema 1 min read26th Aug 201119 comments


Like Yvain's parents, I am planning on moving house. Selling a house and buying a house involve making a lot of decisions based on limited information, which I thought would make a set of good exercises for the application of Bayesian reasoning. I need to decide what price to list my house for, determine how much time and money to put into fixing it up, choose a new home and then there's the two poker games of the final negotiations of the sale.

(I logged onto Less Wrong having just made the decision to consider posting this article, so I was kind of weirded out at first by the title of Yvain's post; but then I was relieved that the topic was somewhat different. I am used to coincidences but on the other hand they push me a little paranoid on my spectrum and I'll feel less stable for a few hours. I already know Google tracks me and who knows what algorithms could be running given a bunch of computer scientists...?)


House Story

tldr; We're listing at the appraised value +10%.

A few years ago, we purchased a beautiful house. 'We' is my husband and I and my parents. We purchased the house because it includes a guest house where my parents can retire. However, my mom continues to postpone retirement and in the meantime my husband and I decided we would a) like more light, b) like a shorter commute and c) could purchase two homes we prefer for the price of this one -- my parents would enjoy a house on the water. (Great post and spot on about the features that matter, Yvain!)

I would be happy to sell the house for +5%, covering real estate fees and new flooring we put in. However, three houses in the cul de sac have sold this year for +10% and so we listed it at that price too. Our house is bigger than theirs but not as nice (they have granite and impressive entrances and we don't). On the other hand, having the guest house makes us special.

Via agent and potential buyer feedback, we're coming to realize that we might be lucky to sell the house for +5%. At this price level, people prefer a house that is impressive and in perfect condition.


Primary Bayesian Question

My primary question is the following: how should we decide to modify our listing price as we get more information?

First, I've read that if a house is priced correctly you'll get an average of one offer every 10 showings. So far we've had 2 showings without an offer. After how many showings should we reduce the price?

Second, the other three houses sold in 6 or 7 months. After how many months should we reduce the price?

Keep in mind, we don't have to move and I estimate that I would be willing to stay in this house for about +3% per year. In other words, I would be willing to wait 2 years for a higher offer if I could sell it for +3% more by doing so.

I anticipate that after posting this I will be embarrassed that it is so pecuniary. On the other hand, this makes it concrete and the problem in general doesn't have too many emotional factors. Any money we make over the first +5% can be used as a down payment for our next house after we pay our parents back. (I did feel embarrassed, so I took out the dollar values and replaced with relative percents.)