Beware: An Overpriced Home Often Sells for Less than Market Value
Sellers naturally want top dollar for their home. And real estate agents naturally want to get that for them. Pricing high during a crazy buying frenzy will work, for that moment of time. However, the housing market will shift to a balanced state or swing into a buyer's market. People are always buying and selling homes, but often at a more measured pace, after a thorough home inspection and usually with some negotiation.
Sellers may ask, "Why not price high and go for it?" The result of over pricing is that your home will sit on the market too long and get “stale.” Once the price is lowered (sometimes in increments) to within the realm of true market value, it will finally attract the buyer clients in the right price point. But these buyers will ask themselves, or their agent: “Why has this one been on the market for so long? What’s wrong with it?” It is human nature that no one wants what no one wants.
Overpriced homes attract the wrong buyers for the property. Let’s say, just for example, the property is worth 1 million dollars. But the owner wants to list it for $1.5 million. The people looking at $1.5 million dollar homes come to look at this one, but it is smaller, not as upgraded, not in as nice a neighborhood, etc. These buyers will then move on to purchase one of the homes properly priced at $1.5 because they are nicer homes. If an agent properly prices the home at 1 million, then the buyers coming to see the home are looking at all the homes in that price point and yours should compare favorably. You home will sell the fastest if your home is priced just a little better than the other homes available. Is selling fast important to the Sellers? If so, price accordingly. Your agent should also highlight what is special about your home – does it have a bonus room, a bigger yard, fencing, upgrades, etc.? By pricing right and highlighting special features, your home will be seen by the right buyers who will want to make an offer, instead of languishing on the market getting stale.
When an older listing has a newly lowered price point, if potential buyers bring in an offer, they will usually drop it even lower than market value. So the desire to overprice a home most often leads to a home sitting longer on the market and then being sold for less than market value. Overpricing does the exact opposite of getting the best price for a home.
In contrast, there is almost always excitement about a new listing on the market. There could be pent up buyers waiting for something like your home. Maybe, if more than one buyer is interested, the sellers could even get an offer over the asking price. Overpricing a home quickly squashes new listing excitement and only helps to sell your neighbors properly-priced homes.
Homeowners should beware the unscrupulous agent that will enthusiastically tell you they can get you the overpriced amount you desire. They are working in their best interest (to get your listing) and not in your best interest (helping you truly get the best price). It’s much better to list your home with an honest and knowledgeable agent who will price the house properly and ultimately net you the best price and usually sell your home faster as well.
Remember to keep in mind, it is a hassle for most people to have a home on the market extra-long. It’s work to keep a home clean and tidy for showings. Having to leave the home for open houses or buyer appointments is disruptive. And all this effort is done in vain if no one is going to be seriously interested in the property. Some agents will even show your overpriced home, just to show their buyer clients the value of another home that is better priced.
I encourage homeowners to talk with their agent about recent comparable sales. Sometimes homeowners want to price their home similarly to the nicest sale in their neighborhood and do not take into account that the two homes are different in size and upgrades or other reasons that impact value. An agent should be able to back up their pricing with very similar comparable sales. And, remember, a neighbors asking price doesn’t mean anything – it's what the home sells for that matters. Anyone can ask anything, asking prices do not determine value.
Of course, it is essential to attract the right buyers to a new listing for sale. It is also important that an appraiser can find comparable sales to determine value. If you priced the home worth a million is listed at $1.5, no matter what the offer is, the home will likely only appraise for 1 million anyway due to recent neighborhood sales. If an appraisal comes in significantly lower than the contracted purchase price, the buyers financing is likely going to fall apart anyway, unless the seller reduces the price. So even finding a buyer will to overpay for a house doesn’t ensure the sale will go through at that price.
During a super hot Seller's Market, prices rise because buyers are willing to pay the difference between the appraised value and the offer price they put on the house. That creates a new comparable sale, but the next buyer in the neighborhood would go over-asking as well, creating another new comparable. And this happened over and over. Sellers didn’t reduce the price because there was a long line of buyers willing to pay over-asking prices.
A home will only sell for what the current market will bear. Today’s buyers are savvier than ever because they have access to so much information online and they often are well-aware of what neighborhood prices are at currently. A good agent will help sellers get a great price because they know how to market a home for sale and are skilled at negotiating strongly on your behalf.
When you are preparing to list your home, you have just one chance to launch it as a new listing and to price it right. If it is priced correctly, you will get an offer or even multiple offers, but if you overprice your home, the market will respond with a lack of showings and offers. After a short while, your home will lose momentum and sellers miss out on the best chance to get top dollar for their home.