Why Overpricing A Home Creates Damaging Effects

The Dangers of Overpricing a Home

Overpricing a homeThe reason why you should not overprice a home is simple. It won’t sell! In addition to not selling when you overprice your property the odds are stacked against you that it will sell for what it should if priced properly from day one!

The process of selling a home can be an emotional roller coaster, one that many people are not adequately prepared for. What your home means to you, and what you imagine it to be, must come to terms with the real world of the current real estate market. And nowhere does this clash become more apparent than in pricing your home.

You are putting your home on the market to sell it. This may seem like a given, but you would be surprised how many people miss this important fact when they begin working on listing their home. Everything you do in the listing and selling process is meant to accomplish this goal. It may be one of your most prized possessions, but the price the market will bear is the most important factor in the sale of your home.

Trying to price your home too high – because you paid a certain amount for it, or because it means so much to you – is a sure way to stall the successful sale of your property. Buyers don’t care that you need X amount of dollars from your home because you are buying something elsewhere. All a buyer cares about is paying the fair market value. There is nothing that will blow up in your face quicker than an overpriced property. In fact overpricing a home is right at the top of the list for reasons why a home does not sell.

You are free to list your home for any price you choose. However, any exceptional real estate agent will tell you that overpricing a home can lead to serious problems. Some of these include:

Attracting Unscrupulous Real Estate Agents

Realtor Lying About Real Estate ValueThe initial asking price of your home may lead unscrupulous real estate agents to your door; people you may not realize are bad news until too late. Real estate agents are in the business of selling houses, and they want to work with clients who hold realistic expectations.

The problems of trying to sell a house priced too high are numerous, and many agents will want to avoid getting into a listing that is doomed to fail.

Good agents will tell you honestly that you want more for your home than you can reasonably expect. However, there are also agents out there who will tell you exactly what you want to hear. Overpricing a home is part of their game plan. They will encourage your high expectations to get your listing, only to tell you later – after the ideal time frame for selling is past – that your price must go down to sell.

You might be thinking why in the world would a Real Estate agent want to take a listing they have no chance of selling? A Realtor who purposely tells a seller their home is worth more than the true market value does so for a couple of Reasons.

  • The first is using your home as an advertising vehicle to pick up buyer clients.
  • The second is a strategy designed to get you to sign a listing contract with them because they can’t beat out a good Real Estate agent otherwise.

There are some Realtors who could care less about selling your home because they want to have their sign in your yard for the next 3-6 months. They want to be able to advertise your home online all the while picking up buyer clients that they can “spin” elsewhere because God knows these prospects won’t grossly overpay for yours.

After getting plenty of buyer clients in the passing months some agents will finally get around to telling you “boy am I sorry the price I gave you for your home doesn’t seem to be working out.” You should drop your price now by $25k Mr. & Mrs. Seller. Sorry the jokes on you! One of the top mistakes home sellers make when choosing a Real Estate agent is picking one based on the suggested list price they give you for your property. Don’t be suckered into the oldest trick in the book! Overpricing homes are part of a lousy agents game plan. There are lot of great real estate agents who don’t have overpricing a home as part of their game plan. It is your job to find one!

Scare Off Buyers

If you are not careful, you can scare off the best buyers before you ever get a chance to show them your home. Buyers are often working with real estate agents, and a good agent can spot an overpriced home from a mile away. These agents will tell their clients to steer clear of your home.

Even if buyers are not using an agent, they will often still avoid a home that seems far pricier than others in the surrounding area. People want a deal, and positioning your home at a premium will drive off anyone that falls into this category. Listen carefully to what the market will bear. Look at the comparable real estate sales data through the eyes of a buyer not as an emotional seller.

One of the things that is common with home sellers who overprice their homes is the belief that every home improvement they have made over the years translates into a one for one increase in value. Unfortunately that is not how things work in real estate valuation. There are some things that cost money that have very little return when selling a home.

Take Too Much Time To Sell

How overpricing a home effects time on marketOverpricing a home causes the days on market to become bloated! Some sellers are more motivated to sell quickly than others. Not all are aware of how much time matters in selling a property, though. There is an ideal time frame to sell a home in, and it usually falls within the first few months that the home is on the market. Take much longer, and you risk having your listing expire – a stain that is hard to erase from a property.

You also risk the market changing on you, and not in your favor. If you price your home competitively in the first place, you are likely to sell it within a month – taking advantage of whatever the current market happens to be. However, if you take too long, the market could go south on you. Your home started off too high, so when the market turns sour, you are going to have to drop far lower than you would have initially to move the property.

One of the things that Realtors often hear from home sellers is “I can wait for a great offer.” “I am no rush.” “I have plenty of time to sell and can wait for my price.” “I can always reduce my price later.”  What many sellers fail to understand is that in Real Estate time is your enemy!

The number one question that every buyer asks their agent when becoming serious about a property is “how long has this home been on the market?” When you first list your home for sale as a seller you are in the drivers seat. A buyer is not. They know they need to be realistic if they want to purchase the home. At a certain point in time, depending on the market, the pendulum will swing the other way and the buyer will feel like they have the upper hand. This is because the days on the market heavily influences what a buyer will be willing to offer.

When the days on market become higher than the norm buyers will start to ask themselves what is wrong with this home? Why has someone else not made an offer? Buyers will feel like they can negotiate with someone who’s home has been on the market for months far more than someone who just listed. This is just human nature and a very common thought process.

Contrary to what many home sellers think, overpricing a home does not lead to a higher sale price. It is the exact opposite.

Failing To Show Up In Search Results

Overpricing a home leads to few showingsReal estate agents and buyers search for homes nowadays in the same way everyone else does – through search engines and consumer multiple listing sites.

They may be specifically designed for real estate, but they still function in essentially the same way as every other search engine. You enter in the parameters you desire, and the search delivers results that fall into those specifications.

If you set your home price at $420,000, everyone searching for homes up to $400,000 will fail to see your home in their search results. For example lets say you have met with a Realtor and they have pinned the market value of your home somewhere between $385,000 – $390,000. The agent recommends that the proper list price is $400,000 figuring there may be a little bit of negotiation involved. The agent realizes that pricing over the 400k price barrier could price your home out of the market.

Instead you decide you want your home priced at $420,000 because you are under the belief that a higher list price leads to a higher sale price. You may imagine pulling in buyers willing to haggle with you, but the reality is that many buyers will miss your property altogether because they are only searching up to $400,000.

Pricing within the range of comparable sales data, on the other hand, will make certain that your home is seen by everyone looking for a place to buy in your neighborhood.

Home Price Appraisal Issues

Real Estate Appraisal RejectedSay you are lucky enough to pull in a buyer that is willing to pay what you are asking. He or she happens to think your place is perfect, and is willing to pay your asking price for the home. There is only one problem: They need to get money from the bank to pay for it.

All banks demand an appraisal of any property they loan out money for, and yours will be no exception. Your local appraiser does not care how perfect you think your home is, nor how perfect a fit it is for this particular buyer. The market rules the appraiser, and he or she will appraise your property accordingly.

When the appraiser comes back with a market value that is noticeably lower than the price the buyer is offering, the bank is likely to balk on giving the buyer a mortgage. This can take you from a sure sale to a botched mortgage application, leaving you looking for further buyers.

Stay Realistic on Home Pricing

Seek out a good real estate agent, and listen to his or her advice for pricing your home. Many will advise you that it is better to list a little lower, and encourage a bidding war, than risk all of the problems that listing too high brings. Stay realistic in your pricing, and accomplish your ultimate goal of selling your home.

Over the years I have seen and heard it all from some home sellers who set unrealistic expectations when it comes to the value of their property. The will forget about the evaluation that the Real Estate agent provided them and instead will come up with every excuse under the sun why their home is not selling. In two decades of selling property I have heard some of the craziest requests from sellers when their property fails to sell.

Instead of being objective about the obvious fact their home is overpriced, the finger will get pointed at the Realtor. Here is a humorous look at what happens with realty pricing issues. While this is a comical look inside the world of Real Estate pricing and may seem a little far fetched, believe it or not some of these things are actually spot on! Overpricing a home creates one certainty – stress for all who are involved.

If you take away anything from reading this remember this one thing: 75% of Real Estate marketing is the price that is set for your home. All of the marketing and advertising in the world will not sell an overpriced home. If you don’t price your home correctly all of the rest of the marketing will be pointless.

Other Home Sale and Pricing Resources:

Use these additional resource to ensure that you understand how overpricing a home will cause you to sell it for less than you would have if your priced it properly right out of the gate!

About the author: The above Real Estate information on damaging effects of overpricing a home was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at [email protected] or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 27+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service Real Estate sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

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  1. says

    Great Article on overpricing.We work with well informed international buyers.Most of our sellers are Madeirense.Having worked in other markets where Market culture has existed for a long time .The above explanation makes sense and especially if there is a selling need to listen to the market then testing market perception on recent realistic comparable market values is rewarding for all.In Madeira generally speaking there is still lack of market culture amongst most sellers.

  2. says

    Another excellent article Bill! I tell my sellers that what is most important to them is what they net: no marketing, endless open houses, low commission, poor pricing – they all conspire against them.

    • says

      Bruce – you are right on the money about all of these things! I tell sellers all the time that the price is 75% of the marketing. If you get the price wrong nothing else you do will matter.

  3. says

    I hope you can hear my applause right now Bill! Bravo! It is easy to get a listing by telling people what they want to hear, overpricing a home is bad for everyone involved, especially the seller. As a home staging professional we can do a lot to help sellers with presentation, but can not perform miracles with an over priced property. I am happy to refer the agents I work with who are savvy about pricing and marketing strategies, not ones that tell the seller everything they want to hear to get the listing.

    • says

      Ginny you hit the nail on the head. It can be really frustrating at times when you are interviewing with a seller and they clearly have chosen a particular agent based on the price they have been given. There is nothing good that comes out of overpricing a home. When sellers do this they put a lot less in their pocket than they would have otherwise.

  4. Andrew says

    I’m a homeowner, not a real estate agent. With that said, everything said in this article regarding pricing makes sense. Certainly, as a buyer of real estate I look at the listings with a high number of days on the market and assume that I have plenty of time to make an offer (which never happens), but would be hesitant because other buyers haven’t been interested at that price.

    Here’s where I get confused… The article (correctly) states that the market will determine the price. Houses that are priced above market won’t sell while houses that are priced below market will often end up in a bidding war (at least in Washington DC where I live) which will raise the price to “market” or even above market (because of people’s emotional attachment and an irrational desire to win the bidding process). Great – market economics at work as we would expect.

    So where do the skills of the real estate agent come in? The market sets the price and the end goal is getting to the sale. Marketing? A commenter above correctly stated that 85% of “marketing” is just setting the price (which is basically costless since it’s fairly easy to figure out comps). We also know that buyers are finding their own homes on the internet, so it’s not really “marketing” either. So is the differentiating skill of the real estate agent hiring the right photographer? Staging? Printing brochures?

    • says

      Andrew all of the things you have mentioned are important when selling a home. In fact they are critical. BUT to say that the right price is not marketing is a mistake. It is the most important part of marketing a home. You can do everything else top notch but if you price the home incorrectly nothing else you do is going to matter. You can have the greatest real estate agent in the world but without the correct price that agent will ultimately fail.

  5. says

    One of the best articles on overpricing, if the seller would only read it.

    Your home can be advertised on the front page of the Wall Street Journal, every day, doesn’t matter if it’s overpriced, it won’t sell.

    Thanks for sharing

  6. Mary Aeck says

    My home is currently on the market. 1st 30 days it was value range priced $479,000 – $519,000. Price has now lowered been to $479,000 – $505,000. The Realtor has done a 180 as far as being pleasant. Now, telling me $505,000 could be $30,000 overpriced. What is going to happen? I am thinking I will take home off market until Spring. That the $519,000 listing price doomed the selling.

    • says

      Mary this is the perfect example of an unprofessional agent who has no idea what they are doing when it comes to pricing a home correctly. I feel badly for you. When the listing expires I would take the time to interview multiple agents. Take a careful look at the market evaluation and the comparable sales – data does not lie people do. Pricing is an art and skill. Look for a Realtor who will price the home properly from day one. As an aside think value range pricing is a terrible gimmick that is perfect for agents who don’t know how to price a home.

      • Mary Aeck says

        Thank you so much for commenting on my situation. Listing expires September 30, 2016. I will start my interview search for a new agent October 3rd. I do not like switching realtors but in the case I think it is a necessity. If my realtor could not price correctly, what else does she fall short on? I live in Santee, California. I am questioning is it beneficial to list with a realtor that is connected to a major company, like Century 21, having more connections to buyers or a realtor who is their own broker? I have had 2 neighbors recommend people they have dealt with on the recommendation of friends or co workers.

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