When to over price your home.
From 2002 – 2005, I overpriced most of my listings because we were in an appreciating market. I had buyers lining up to get access new listings. One of the top conversations when listing a home in any market was the commission. In an appreciating market, I would add my commission on top and within 3-6 months the market caught up and we would have offers. Sometimes, we had offers right away even at the high price because buyers did not want to miss out.
If we priced a home at $510,000 and added our commission on top, in 3-6 months we would start getting offers as the market appreciated at a rapid pace.
Avoid Under-Selling your home.
In my career, the 2006 – 2010 market was the most difficult when it came to pricing due to a rapidly depreciating market.
When the market turned for the worse, many realtors continued overpricing homes because sellers were looking backward at neighbors who sold for more money and felt they should get the same price or more.
In a depreciating market, if I gave a price opinion of $500,000 but the neighbor 6 months ago sold for $525,000, some sellers felt I was underpricing their home because another realtor gave a price opinion of $530,000 based on that last comp of $525,000. Some sellers perhaps felt I was looking for a quick dollar when in fact I was avoiding under selling their home. Some sellers would circle back to me looking for that $500,000 list price but 6 months had gone by and disappointingly my number was lower and I was challenged with trying to sell a house the second time around. In this market, you had to price a home below market value to avoid underselling your home.
In a flat market or stable market.
In a flat market or even a stable market, pricing is so important to avoid underselling your home. If this is not done correctly you will end up with less money than the home is worth.
The biggest seller misconception is real estate is, “Let’s price it high and if buyers don’t like it, tell them they can just make an offer.” Unfortunately, the exact opposite happens.
Most people make decisions on fear. In this case, if the price was really good, the buyer will move fast out of fear of losing the home to another buyer. When the house is overpriced, in most cases, 2 things happen:
If a home is worth $499 and its priced it at $525,000, the buyer for the home doesn’t even know it’s on the market because they only looking up to $500,000. and buyers looking in the $500k-$600k will skip it because they have better options.
The buyers that do look at the house will not feel pressure to act and continue on with their search knowing that the overpriced house will sit for a while and start reducing in the next couple of months. Once there are some price reductions, sometimes buyers will circle back and make an offer below market value.
You see there is no fear of loss. In fact, buyers are fearful of making an offer because they think they will be wasting everyone’s time or feel the seller will get upset with the lower offer.
Here is another problem with overpricing. You ever notice when one neighbor seal coats their driveway, 2-3 other neighbors do the same. Or when one neighbor does an addition, someone else decides to do the same. Selling a home is no different. When a house comes on the market, others decide to do the same. If your home is overpriced and two more homes on your street hit the market a lower price, the buyers who saw your home and did not act, will know move quick on the ones that are priced correctly so they don’t risk losing the house to another bidder. Now your home is sitting on the market accumulating days on market and a history of price reduction ultimately causing your home to sell under market value.