Perils of Overpricing Your Home
Amy January 28th, 2007
Every time I sit at a dining room table with a potential client, the main topic of discussion is always pricing. As a Certified Residential Specialist, I have learned and employed about three methods of determining price on a regular basis. Being a specialist in the Hyde Park and surrounding areas, I have a strong pulse on the local market.
I have accurately priced so many local homes, that I have sold them in hours, days and weeks, versus other agents who look at months and years. It is not uncommon for one of my listings to sell in less than a week if I can work with my sellers to understand how the home needs to be priced. More than 6 times in the last year, my listings have sold the day they were put on the market, and I have been involved in many multiple offer situations, all pointing to fair market pricing of my listings.
Often, my sellers ask “Can we try it at $300,000 for the first few weeks, and then if we don’t get serious buyers, we will drop it to where you suggested.� My answer is no, because you have your most serious buyers looking at the house the FIRST DAY it is on the market. More than 80% of the serious buyers evaluate your home on the FIRST DAY it hits the MLS. This is why you must be priced at fair market value on that first day, or you loose 80% of the people who would have purchased your home if you would have priced it according to market suggestions.
Also, keep in mind that most of these buyers have been looking for their dream home for about 3 weeks, and have the ability to compare your new listing to dozens they have already seen, and make a fair judgment of it’s price.
The first graph below shows what a seller can expect to get for their home based on the original asking price and the amount of time it takes to sell their home. When ,in fact, if they priced it correctly at the start, they would have saved hours of preparing for dozens of showings, several months of mortgage payments, and several thousands of dollars.
The basic forces of supply and demand are evident in these survey results that compare the average percent difference between the asking prices of homes and the actual selling prices. On average, homes that were on the market for less than four weeks actually sold for slightly more than the original asking price. However, as the length of time a home was on the market increased, so did the difference between the asking price and the selling price. Homes on the market for more than 24 weeks sold for an average of 10 percent less than the asking price.
I am sure there are times when you have driven by a home that has been on the market for several months and asked yourself, “I wonder what is wrong with that house!� As I shared before, the longer your home is not priced according to the market, a list of situations occur, and are not to your advantage while your home is priced too high. Here are a few of those situations:
- Agents will show the property only or just to validate a better price on a comparable property (all of the other homes in your price range will sell before yours).
- The property has a historically longer Time on the Market and, therefore, lower net to the seller due to accrued holding costs. (see chart above)
- On sales involving a high loan to value ratio the financing could be in serious jeopardy due to appraisal. (Appraisers and banks are not taking the risks they used to with 100% buyers being the majority in the
market today. Many times, the purchase price will need to be reduced or renegotiated after a bank appraisal comes in lower than contracted selling price. Ohio ranks #1 in forclosed homes and has for more than 2 years.) - Overpricing decreases the property’s chances for high exposure because most agents want to present only the very best options to their customers (buyers and agents want to work with sellers who are realistic in their pricing, as they will have a smoother negotiation throughout the process).
- The brokerage company would be less likely to offer maximum advertising support because the same dollars could be spent on properly priced properties that would generate a sale much more quickly.
- The property can become lost in what is called the “Computer Shun.� Buyers qualify for price ranges, and if you are above the upper limit on the computer run, you won’t even get considered (this is part of the reason why I always suggest pricing the home strategically to capture buyers above and below your price).
- The same principle of the computer shun can be applied to the multiple listing book. The upper limit cuts off at a certain page (for example, if the buyers got 57 listings to look at, and the most expensive listing was that number 57, and they didn’t get a chance to review all of the homes yet, they may never get to your property before finding one of the other 50+ homes in a lower price range to meet their needs).
- Due to the increased term the property runs the risk of becoming shopworn. If this happens, any offers that do come in are well below that they might have been if they had been priced properly from the start. (see chart above)
Overpricing will not benefit anyone in the transaction, least of all the seller. I recently read a similar article on the Austin Real Estate Blog that tests my theory, and along with it, will share an example in Austin, TX of your likely next thought, “If my home sells in one day or one week, was it priced too low?� Look at it from the perspective of one of my colleagues and fellow CRS Realtors in Austin TX here.
