Pricing Your Home Too High Can Cost You Dearly

Are you thinking of selling your home? If so, no doubt one of your big questions is “How much is my home worth?”

Determining a home’s value involves complex analysis and knowledge of your market. The days of starting with a high asking price and letting the buyers negotiate are long gone. Today’s homebuyers expect homes to be priced well, or they simply move on or wait for the price to drop.

What are the dangers of pricing your home too high? Suffice to say they far outweigh any risk in pricing your home too low—here’s why.

Simply put, it’s hard to under price your home with savvy buyers scouring the internet looking for well priced homes. Buyers have all the tools at their disposal to know if your home is well priced or a pie in the sky price where the seller has based their asking price on what they need rather than what their home is worth.

Before home buyers had access to the internet they relied more often than not on their real estate agent for home sales data. House hunters would drive around on weekends looking at open houses and after 50 of so they’d get a pretty good idea when a home was priced right and when it was overpriced.

Now that buyers have relatively unfettered access to information on recent sales and activity, buyers are in a much better position to instantly know whether or not there is value in your asking price.

Armed with this information buyers are ready to pounce on good deals and will readily pass on others.

What effect does this have on your proceeds or your ability to sell your home?

We did an in-depth analysis of homes which had sold in Belmont. We looked at a year’s worth of sales and how long each home took to sell. We compared that with what percent the seller received of their asking price; the data proved overwhelmingly that pricing your home aggressively rather than “leaving bargaining room” netted the seller far more money and in far less time. The correlation in listing price vs. price received was reported in this graph and accompanying podcast we did a few years back.

Because buyers have all the data they need to make informed decisions, they also know when a home is underpriced. Most serious buyers have signed up for some sort of listing alert which will email any new listings that meets their parameters within minutes of being entered into the multiple listing service—the system REALTORS® use to share their inventory.

Since most savvy agents will recommend to their principal that they wait a few days before accepting offers to give the home sufficient marketing time, by week’s end typically any and all serious buyers have viewed your home and know immediately if it’s priced right, too high or too low.

Pricing a home lower than the competition is usually greeted with anxious buyers waiting to deliver an offer. When more than one buyer competes for a property, in order to make their offer stand apart buyers will often increase their offer price above and beyond the seller’s asking price in order to secure the home. Given enough bidders the seller comes out ahead in this situation since the highest bidder typically was willing to pay more than anyone else at that moment for your home—also known as the “Bidder’s Fool Rule”.

Conversely a home which is overpriced will languish on the market for months even years. Once the window of opportunity to sell without a price reduction (typically the first 21 days) passes it becomes a downward price slide with buyers wondering how low the seller will go and the seller fretting about how many price reductions it will take to attract a buyer. Meanwhile your listing becomes stale as many new homes are coming on the market everyday—even your real estate agent might forget about a home that was listed months ago.

Then of course there's the buyer's concern that there must be something wrong with your home since other homes in the neighborhood have all sold. Declaring that there’s nothing wrong with your home is desperate and ill advised and once a home is tainted with the days on market curse it’s nearly impossible to sell for your asking price and you are relegated to the only course of action which is aggressive price reductions—lowering your asking price below what you could have sold your home for if it was priced properly from the onset. 

Did you know that last year of the 213 single family home sales in Belmont 60 (or nearly 1/3rd of all sales) sold for on average $28,000 over the seller’s asking price and did so in only 31 days on the market? Compare this with overpriced listings which comprised 57% of the homes and received on average $34,000 less than the seller’s asking price and took on average 64 days to sell—nearly twice as long. Those home which apparently were listed at what buyers felt they were worth—no more or no less—received their asking price in on average 38 days.

In today’s market if you are considering selling your home be sure and contact a REALTOR® to explain the intricacies and strategy of pricing your home to sell.

Drew and Christine Morgan are REALTORS® in Belmont, CA employed by RE/MAX Star-Carlmont.

MorganHomes.com

(650) 508-1441      

The information contained in this feature is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.