One part art, one part science, determining the correct selling price of your home is no easy task. Yet, it is one of the most important factors to get right if you want a timely sale at an optimal price. Determining the best offer price should be dictated by the market. Some sellers may choose to ignore the market and start with a higher sales price, but to do so is risky, and a decision most people end up regretting. What are 6 risks that sellers may face if they overprice their home? Read on to find out.
Squander the Early Days
Listings get the most showings in the first 30 days of being on the market. If a home is priced too high, buyers may choose to ignore it or put it in a “wait and see category.” The longer the home sits unsold, though, the more negatively it is viewed. Buyers will think it must be overpriced or there is something wrong with the home. If you wait too long to do drop the price, most of those “wait and see” buyers will have already moved on and there will be a smaller pool of buyers interested in your listing as the days on market increase.
If the home is on the market too long, potential buyers will think they are in a better negotiating position and you may end receiving a low ball offer, which can be frustrating. Even if you can negotiate up, it will be for far less than your original asking price. If you want to attract as many potential buyers as possible, it’s important that the home be priced correctly from the onset of it going on the market.
Online Search Issues
Nowadays, most buyers go online to begin their home search. Real estate sites with search functionality will allow visitors to input their criteria, including price, and homes that meet the buyer’s specifications will be displayed in the search results. When your home is priced too high, you effectively screen yourself out of these searches. If a buyer looks for homes in the $500,000 - $600,000 range and your home is priced at $610,000, it will not be seen. This means that potentially hundreds of potential buyers may never even know your home is for sale.
You may eventually drop the price to within the $500,000 - $600,000 range, but as the days on the market increase, you run into negative perception issues, and the pool of interested buyers will get even smaller.
Having to Chase the Market Down
If you list your home too high to begin with, you may find yourself making incremental price drops, but never quite catching up with the market.
For instance, let’s say a seller insists on putting their home on the market for $700,000 even though recently sold comparables indicate that $675,000 is really the true market value of the home. Three months later, after only a smattering of showings, the seller finally decides to drop the price to $675,000. Because markets are dynamic, the number of buyers decreases as time goes on. After 90 days, buyers who may have thought the home was worth $675,000 at the time the home was initially listed, may now think the home should be valued at $655,000 because it has been on the market for so long. If the house still does not sell and the seller further reduces the price to $655,000 two months later, by that time buyers may only be willing to pay $640,000. Thus, the seller may continue to drop the price, but not catch up with buyer’s expectations.
Financial Implications
The longer your home remains on the market, the longer you have to continue to make mortgage payments and accompanying utility and home maintenance costs. 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 buyers month after month, you are spending money that you would not have had to if the home had been priced appropriately at the beginning.
Appraisal Problems
Sometimes, a seller may be lucky enough to get an offer at their optimistic price. It may be that your home is in a very desirable neighborhood or that the buyer agrees that your house is something special. However, you are not out of the woods yet.
For your buyer to get a mortgage, they need to have the home appraised. The dollar amount the bank will lend the buyer is based on the appraised value of the house rather than the agreed upon purchase price between the buyer and seller. The appraiser will use the prices of recently sold nearby comparables to help determine the value of your house.
If your home does not appraise for the agreed upon sales price, the seller will either need to reduce the price to meet the appraisal value or the buyer will need to come up with additional funds to make up the difference. Buyers are not going to be eager to shell out more money on a property than the appraised value.
If the buyer has an appraisal contingency in the contract and the home does not appraise, the buyer can void the deal, and you may end up having to put the home back on the market, incurring additional expenses and adding to the days on market.
Stress
Unless you were able to vacate your home before putting it on the market, you will need to maintain your home in show ready condition, which is a considerable amount of work, even for the tidiest of individuals.
Keeping floors, carpets, windows, kitchen, and bathrooms clean as well as maintaining the landscaping, are essential to making your home shine and to attract potential buyers. This level of cleanliness is doable for most people for a month, maybe two, but it gets to be more stressful the longer a home is on the market.
Failing to sell your home in a timely manner is enough to lower the spirits of anyone, making it even harder to keep up the pristine condition of your home.
How Can You Avoid Pricing Your Home Too High
As you can see, there are many potential problems if your home is priced higher than what comparable properties dictate. Here are 3 tips to help you avoid this situation.
Pick the Right Agent
If you ask several agents how much they think you can get for your house, and one gives you a significantly higher number than the others, be cautious. The agent may be throwing out a high ball number just to get your business. A good agent will not fill you with false hope. Ask each agent for a Competitive Market Analysis (CMA). You want to choose the agent who can back up their suggested listing price with comparable sales data.
Don’t Get Emotionally Involved
You’ve likely spent a lot of time, money and energy in your home over the years, so it’s natural to be emotionally invested in its sale. But, the biggest mistake sellers can make is to confuse prices or costs with property value. Just because a seller may have spent thousands of dollars on a wine cellar in the basement does not mean those costs will be fully recouped in the sales price. Buyers may not care about or value this amenity as much as the seller. Market value is determined by how the home is valued in the market, not by one individual. Sellers need to stay objective during the pricing process by focusing on the prices in the CMA.
Don’t Rely on Zillow and Other Online Estimates
There are some sellers who mistakenly believe that Zillow’s pricing estimates, called Zestimates, and other online valuations tools can be used as a good gauge of estimating real estate market value. However, an online valuation tool is never going to replace a good real estate agent who knows the local market. Read my previous blog, Should You Trust Zillow’s Estimate On The Value Of Your Home, to learn about the median valuation error rates on Zestimates. You will be surprised at how far off these estimates can be to the actual selling price of a home.
What is Your Home Worth?
If you are planning on selling your home in the next month, or even the next year, and want to know how much your home may be worth, contact the trusted Realtors® at the Eric Stewart Group for a FREE home valuation at no obligation. It’s never too early to start the planning process and getting professional input on your home’s market value.
Do you live outside of the DC metro area. Let us help you find a qualified agent in your area. Contact us at 1-800-900-9104 or at EricStewartGroup.com. We would be happy to assist!
