Many homeowners enter the process of putting their home up for sale with assumptions that hurt the final sale price. One of those assumptions is to price a home far above its market rate, that is, the typical price that similar size and style homes sell for in the same area. Unfortunately, an overpriced home is easy to spot. Buyers are savvy researchers and many of them have experienced agents who know the market well enough not to be duped. The consequences of overpricing can mean a long time on the market with no sale or a drastically lower price than the house could have commanded if initially priced right. Let’s list the typical rationales sellers use to justify their high price.
Maybe we’ll get lucky. In this instance, the sellers assume that maybe they’ll get lucky. They’ll find a buyer who likes their home so much that they’ll pay close to the inflated price. While this is possible, it’s an extreme rarity. There’s too much information available online for buyers to be in the dark about market value. Even if the overpriced seller does find someone willing to come close to their price, the buyer is likely to need a loan to purchase the property. Borrowing money means an appraisal is required. If the house doesn’t appraise at the purchase price, the lender won’t lend and there is no sale.
We’ll have plenty of room to negotiate. Some sellers want to pad the price of their home with tens of thousands of dollars because they feel that leaves room for negotiation with a greater net in sale. This strategy is problematic because the home will still be viewed as overpriced and will scare away buyers from seeing the home. If it’s out of their price range, some won’t bother looking at it. Other buyers will think, “I don’t want the hassle of trying to get them down so much further than their asking price.” And many Realtors® will also steer their clients clear of such homes because they figure it isn’t worth anyone’s time to deal with a seller asking an inflated price. Of course, most sellers do add in some room for negotiation, but that figure is usually within 1 to 3% of the expected selling price, depending on the market.
My home is worth it. Sellers who have a hard time pricing their home correctly often fall into this category. They’ve taken great care of their home, invested in many improvements, and view their home as worth the asking price—even if it’s far beyond anything that’s sold in its location. Improvements definitely can increase the value of a home, but homeowners need to understand that you don’t always get back every dollar you paid for each improvement. This is especially true if you’ve “over-improved” your home, which means you’ve made so many improvements, it’s unlikely you could ever recuperate your costs when selling. A well-maintained home with many updates definitely has the opportunity to sell higher than similar homes in the same location that don’t have those improvements. You’ll fair best to rely on a Realtor®’s unbiased point of view to ensure that your home truly does stand out among the other homes in the area. And even if it does, you’ll still want to rely on market value as a benchmark for your pricing so that you aren’t way out of the ballpark. Unfortunately, sellers in this category often fail to see that there are indeed homes selling at lower prices that are similar to or better than their home.
We need the money. Sometimes sellers justify their high price because they overpaid for the house and want to recuperate what they spent. Or they have a set figure they want to spend on their next house and they think they can make a better down payment with a high price from their current home. “We need the money” rationale never works because buyers aren’t buying your home to do you a favor. Fair market value is what most buyers are willing to pay and what most sellers are willing to accept. Buyers are usually looking for good deals, but mostly end up paying fair market value. They aren’t looking to overpay. Overpricing is a sure way to backfire on your hopes of getting the most out of your home sale.
The Damaging Effects of Overpriced Homes
The first damaging effect is that your target buyers won’t even know about your home. Buyers and Realtors® use a set price range to search for homes online. If a buyer’s range is $200,000 to $245,000, they might enter $200,000 to $250,000 in their search to leave some negotiation room. If the market value of your home is $250,000 and you’ve priced your home at $275,000, this buyer won’t even see your home in their search results. You might think, “I’ll get people looking in the $250,000 to $300,000 range.” Yes, that’s true, but unfortunately they will notice that the homes correctly priced in this range have more to offer in size, upgrades, type of neighborhood, etc. So why would they make an offer on your home if they can get more for their money in other homes?
The second damaging effect is time. Time is not your friend in real estate. Buyers want to see what the latest house is that’s come on the market because they believe the best ones get bought the fastest. An overpriced home sits on the market for months and months or longer. It also gets fewer showings. Eventually you’ll drop your price several times and attempt to “chase the market.” Chasing the market means that you’ve started high and you’ve come down and down, trying to find the right price where someone will make an offer on your home. When you’ve been on the market a long time, your house is often considered stale and unwanted. It’s human nature for people to wonder, “what’s wrong with that house?” Or they just assume that your price is so high, you’re unwilling to negotiate, so why bother.
The ultimate damaging effect is a lower price than you could have obtained had you priced right at the start. Even if you’ve eventually come down to the price you should have started with, now buyers are rarely willing to accept that price. They will low-ball your price. Why? Because they have all the information on how many times you’ve dropped your price and how long your house has been on the market. They view themselves as having the upper hand and they want a “steal,” or at least a really good deal.
Price it Right the First Time or Course-Correct Quickly
Realtors® have seen it happen time and time again. Overpricing hurts the final sale of a home. Heed the warnings. Homes that are priced right for their market and condition sell the fastest, whether they’re in the low $100,000s or the high $400,000s. If by chance you’ve overpriced your home at the start, course-correct quickly, within a few of weeks of being on the market. A quick correction in price will not harm you nearly as much as sitting on the market for months going nowhere before dropping your price.