When I visit with a homeowner who wants to sell their home, 9 times out of 10 the goal is to sell the house as soon as possible for as much as possible. Many sellers will even prefer to list on the high side knowing they may need to hold out longer to get the higher price. As a homeowner myself, I get it! There is nothing wrong with wanting to get the most out of your largest financial asset! However, sellers with the “It won’t hurt” mindset when setting an unreasonable asking price for their home are in for a stressful time.
5 reasons why overpricing your home could produce a LOWER sales price:
- In most cases, the home must go through the appraisal process. Even if the buyer, seller and their REALTORS® agree a price is fair, the appraiser may disagree based on comps he/she chooses to use. In my experience, if the sales price is too out of alignment with these comps, the appraiser doesn’t even try to justify the sales price, resulting in a lower value. Bad news. However, if the sales price is “just a touch” high, an appraiser may bump up their assessment to match the sales price. I’ve noticed that most appraisers try their best to meet the contract price if it is in the realm of reason.
- At a higher price, the seller will have fewer showings and the house will stay on the market longer. While this in itself is not particularly a bad thing, the result is that the home may become “shopworn,” and by the time the seller notices the lack of showings, the damage has been done. Price reductions are often overlooked, and agents who show overpriced listings rarely go back. Even once priced correctly, buyers new to the market will wonder why the home has not sold and automatically think there is something wrong with the property.
- If the seller receives any offers, they will be low and insulting, often lower than if the house would have been priced correctly. Buyers and their agents are really turned off by overpriced listings. Buyers will think the sellers are greedy and even if they love the house, their offer will be made with a chip on their shoulder. Receiving an offer is usually a very exciting time for a seller, but will be a very stressful time for an overpriced seller.
- Overpriced listings help sell the competition. The longer the home is on the market, the more sold properties buyers have to compare it to, making an overpriced listing look more and more overpriced. A home’s sales price reflects a seller’s motivation, and sellers are competing with other homeowners that NEED to sell.
- Overpriced listings attract the wrong buyers. Every set of buyers in a particular price range are expected to see certain features in a property.
Examples from Personal Experience:
There is a beautiful, huge home down the street in my neighborhood of Hidden Springs, Idaho. It sold in the summer of 2018 for $735,000 and many of my neighbors were surprised when it was relisted the following spring at $899,000. The sellers had made some minor, cosmetic upgrades, but the house was beautiful to begin with, and honestly there wasn’t much room for improvement. At the new $899,000 price, the home was on the market for about two weeks before the sellers dropped the price about $25,000, then it stayed on the market for another week before the sellers withdrew it from the market completely. While it is beautiful home, it does not have much of a yard or a view. Hidden Springs, Idaho buyers in the price range of $900,000 usually want a large yard or a view. I’m not sure the home had any showings during its short life on the market, but this would be a great example of attracting the wrong buyers.
I’m also reminded of my time in brokerage management when I first started in real estate 12 years ago. I was reviewing a listing file as one of our agents was sending in a new addendum every day with (seemingly) the same price change. Upon further review, I discovered the price of the home was dropping $1,000 every day for a solid week! The listing agent thought this was a great marketing strategy, but do you think a buyer was particularly attracted to a home that was listed for $389,000 on Monday, $388,000 on Tuesday, $387,000 on Wednesday, and so on? My point is that the impact of price reductions (especially tiny ones) have minimal impact.
Here’s another example of the first house I listed: my own. My husband and I bought a short sale for $180,000 to live in it, fix up, and sell in two years. For our first renovation, we did a pretty good job, even though we spent more money than we should have on some updates (but there are still some things I like better about that house than the “nicer” one I live in now)! We finally finished with renovations in October, and threw it on the market for $295,000, hoping to sell before winter. I had nearly no comps to work with as nothing in our neighborhood had been renovated, but after a buyer’s feedback about having old windows, I realized that our house was competing with new construction in the $300,000 price range. After some price reductions that seemed to garner little attention (at least through the winter), we sold our house for $265,000 the following March. We may have been able to sell faster (before winter, like we wanted) if we had appropriately priced the home at $265,000 to begin with. Lesson learned!
When you decide to list your home, make sure your real estate agent shows you good comps and suggests a range for the asking price. I never like to tell a client what they should list their home for, rather present a range and explain that the home is likely to sell faster at the bottom, and may sit on the market longer at the top. I always let the client choose their asking price, and if I think it is unreasonable, I won’t take the listing as I find it a bit unethical to do so. At the same time, I share the desire for all my listing clients to get what they want: the highest sales prices in the shortest amount of time by avoiding the dangers of overpricing!