The Problem With Overpricing a Home
One part art, one part science, determining the correct selling price of your home is no easy task. You want your home to move, but you also want to get as much money as you can out of the transaction.
Not only is it probably one of the largest sales you will ever make, but it also involves selling something important – a possession that may mean more to you than any other you own.
When you start the process of selling your home, though, you have to make a shift in your perception. This is business, and you are selling a product in a larger market that will dictate much of your decisions.
You can choose to ignore the market, but to do so is risky, and a decision most people end up regretting. There are many risks of pricing your home too high the most important being the fact you will sell it for less than if it was priced appropriately! This makes understanding the correct sale price of your home as a critical exercise.
The thing many sellers fail to realize is that pricing a home higher than it should be priced does not increase the probability it will sell for more. It is the exact opposite!
The risks of overpricing a home are significant!
The Eager Agent
You may do a little research first, or you may begin by looking for an agent. What you will quickly realize, though, is that there is no shortage of real estate agents out there that will gladly consult with you in hopes of obtaining your listing.
Unfortunately, some are unscrupulous or inexperienced, and may encourage you to list your home at a price that is too high. They know you want to hear that your home is worth a lot, and will play upon those desires to get in on your sale. This is not good for you, for several reasons.
How Overpricing Creates Problems
Here are a few common issues and problems that people encounter when they overprice their home all of which can lead to you getting less than you expected.
When you put your home on the market, you want it to spark interest in some buyers quickly, and you certainly want to sell it before the listing expires. When your home first goes on the market, it should be appealing and at a price point similar or better to comparable homes in your area. If the home is not priced right, it may be ignored, or worse, noticed by buyers and placed into a “wait and see” category.
If it takes you six months or more to sell your home, the market may not cooperate with you. You may be forced to take a price much lower than your original asking price. Say you began with a price of $500,000. All other comparable listings in your area were at $450,000.
Your home did not sell while all the other homes around you did. Now, a year later, the average home price is now $425,000 – a price you are forced to take. This is an example of what can happen when Real Estate values are on a downward slide.
Going back a few years ago when markets around the country were going through a correction, I was selling quite a bit of Milford Real Estate and it became brutally apparent to me that this particular town was getting hit greater than some others.
It was important to guide my clients by keeping them informed of how prices were in a continuous decline. Some owners reduced their price but by the time they did home values had slid even further. You can see how it is important to understand how to the local market is performing.
Your family may be incredibly neat and tidy. However, maintaining a home in showroom condition is a considerable amount of work, even for the cleanest individuals.
You are setting your home’s price to get the maximum sum of money you can, but it has to be in pristine condition to attract buyers.
Clean floors, carpets, windows, kitchen, bathrooms, no clutter, landscaping – all of these must be maintained for your home to shine.
This level of cleanliness is doable for most people for a month, or maybe even three. But can you keep it up for six months or a year?
Failing to sell your home promptly is enough to lower the spirits of anyone, making it even harder to keep up appearances. Selling is stressful, and should be done as quickly as possible for the mental health of everyone in the home.
Every month your home remains on the market, you are making mortgage payments. Every month it goes unsold, you pour more money into the home that you will not get back.
With a high price, there is no negotiating up. If there are no takers month after month, you are giving money away that you should not have to.
The opinion of your home as a desirable product, or a value, is important in real estate transactions. A shift in attitude on the part of buyers can cause you serious headaches and lose you significant amounts of money.
The longer your home sits on the market, the more you risk a negative shift in this perception – something you want to avoid if at all possible.
When your home first goes on the market, it will be considered by any number of buyers as long as the price is comparable to others and as long as your real estate agent sells it correctly.
It may or may not be what everyone wants, but is at least perceived in a neutral way.
The longer the home sits unsold, though, the more negatively it is viewed. It must be too expensive to sit for so long, or have something wrong with it. Real estate agents working for buyers may steer them away from your property, or tell them to wait for a drop in price. And when you do drop your price, some may see you as an easy target.
When the price drops you might finally see an influx of potential buyers, only these buyers all hit you with low ball offers that can be frustrating and sometimes even upsetting. You know your home is worth more than these offers, but you are now trapped, and they know it.
One of the questions that almost all buyers ask their agent is “how long has the home been on the market?”. They are asking this question for one reason and one reason only – how flexible is the seller going to be.
It is safe to assume if your home has been on the market a while the potential buyer is going to feel like they can negotiate more. It is human nature to think this way because, in most instances, it’s the truth.
This is when some sellers will choose to remove their homes from the market entirely, if they can afford to do so, and wait for the situation to be forgotten or for the market to shift in their favor. Others have no choice but to sell and are forced to take less money than they would have had they just stuck with a reasonable price in the first place.
Sometimes, you may be lucky enough to get an offer at your optimistic price. A buyer may agree with you that your home is something special, and worth paying for.
This may be due to inexperience, or money may be less of an object to them, or you may have something they really and truly desire. However, you are not out of the woods yet.
For your buyer to get a mortgage, the bank will need to have your home appraised. Your buyer’s appraiser will use the prices of nearby, comparable homes – or “comps” – to help determine the price of your house.
If he or she determines that your price is too high, it can create not only a delay in the mortgage process but potentially a lender who will not loan on the property.
Sometimes the mortgage will still go through, sometimes it will not. In cases where homes do not appraise, a seller will either need to reduce their price to meet the appraisal or the buyer will need to come up with additional funds to make up the difference.
You are going to need to know how to deal with a low appraisal on a home. Most home buyers are not going to be so eager to shell more money over on a property the lender has determined is not worth it. Either way, you could endure costly delays. A low appraisal is one of the bigger risks of pricing a home too high.
Online Search Problems
Most buyers use the Internet in their initial home search. Screening homes online involves putting in certain criteria into a search to screen out unwanted homes. It may seem a small thing, but when you price your home too far above the comps, you remove yourself out of these searches.
If a buyer looks for homes from $200,000 – $300,000, and yours is $305,000, it will not be seen.
By pricing your home just a bit too high, hundreds if not thousands of potential buyers never even know your home is there. Sometimes a seller will cut off their nose despite their face thinking that if I price my home five thousand higher, I will put five thousand more in my pocket. Wrong! It does not work that way. Using that logic you might as well price your home fifty thousand higher.
How To Avoid Pricing Too High
As you can see, the potential problems with pricing your home too high are significant, and can cost you a lot of money. There are several ways you can avoid falling into this trap, though.
Hire an Experienced Agent
A good agent that closes on a respectable amount of properties will not fill you with false hope. He will explain to you that, though you may have raised your family in this home, or purchased it at the height of the real estate bubble, that the market still rules. Respect it, and you will sell your home for a fair price.
Look for an agent that has been in business for a few years, and that tends to sell homes quickly and for near the original offering price. An honest agent that doesn’t NEED your business is critical.
Understand what I mean by the word “need.” Agents that need business tend to give advice that suits them and not their clients.
If the Realtor you are working with has very few deals in the pipeline they are probably going to be very anxious for their next sale. A Realtor desperate for a paycheck is not the kind of agent you want. A top producer never worries about where their next sale is coming from.
Visit Open Houses
You need to get an idea of the competition. It will help you see where your home stands, either better or worse than those on the market. Accurate information will help you make an informed pricing decision.
Keep in mind, however, that you should not base the value of your home on what one of the neighbors thinks their home is worth. There is a good chance the neighbors home is not priced correctly, especially if it has been on the market for a while with no takers.
Don’t feel bad about scoping out the competition at an open house either. Real Estate open houses rarely ever work for selling a home and are typically heavily visited by other neighbors and tire kickers.
There is nothing more synonymous about an open house than the term “nosy neighbors”! You might as well join the party to get an accurate handle on what is going on in the local real estate market.
Don’t Use Zillow Estimates as Your Guide
Some sellers mistakenly believe that Zillow pricing estimates can be utilized as a good gauge of determining real estate market value. Don’t be silly! You have better odds of meeting Big Foot that you do of seeing an accurate Zillow estimate or “Zestimate” as they like to call it.
An online evaluation tool is never going to be able to replace a local real estate agent who knows the market. Don’t be foolish enough to believe a computer algorithm can determine the value of millions of homes across the country. I have seen values off by over $150,000 both high and low from Zillow!
Go In A Little Lower Than The Value
You should not be afraid to price your home a little below the comps in your area. If it is priced well, you will see numerous offers and then you will be the one with the upper hand. You may see enough offers to start bidding on your home, and eventually wind up with more money than you expected.
Pricing just a hair below the market is a common strategy in real estate that works really well if you can achieve the goal of getting multiple bids on your property. This is the best position you can be in as a seller because buyers often times let their emotions dictate their decision making and not sound logic.
A buyer overpaying for your property in a multiple bid situation is not out of the realm of possibility.
Put Time on Your Side
You can sell your home in a reasonable time frame and for a fair price. Pricing too high is never a good idea. Avoid making this mistake, consult a good agent, and make your sale. With the right mindset, a respect for the market and the help of an experienced agent, you can put time on your side. Did you start the listing price a little to high?
Are you not getting much buyer activity on your home? Are you thinking it may be time for a price change? Here are some ways on how to know it’s time to reduce your home price. Let these be a good guide that is may be time to get more realistic if you really want to get your property sold!
Additional Helpful References on Pricing a Home
- How to determine the correct price of a home via Joe Manuasa Real Estate.
- Ten excellent tips on how to get the best price for your home Via Investopedia.
- Eight lame reasons homeowners have for overpricing their property that they give to their agent Via Maximum Real Estate Exposure.
Use these additional references to make absolutely certain you price your home correctly and understand the likely consequences when you don’t! When you price your home properly out of the gate the odds dramatically increase the chances of sitting at a closing table in a reasonable amount of time.
As you can see there are many risks of pricing your home too high. Best of luck!
About the author: The above Real Estate information on the risks of pricing a home too high 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 32+ Years.
Are you 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, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.