Overpricing one’s home prior to going on the market almost always has negative ramifications for sellers. For example, sales data across the Bay Area real estate markets show that listings that require price reductions before selling consistently take much longer to sell and sell for significantly lower average values than homes priced correctly.
Conversely, overpriced homes can provide opportunities for buyers, to purchase properties for less than their market value, especially if the buyers are carefully tracking time on the market and price reductions. Such buyers will almost always face reduced competition from other buyers and even sometimes no competition at all, which will generally eliminate the need for overbidding and allows for more aggressive negotiation of the purchase price and terms of sale.
1) Overpricing versus Realistic Pricing
Instead of getting more money, overpricing usually stigmatizes a property for which the sale price had to be reduced one or several times and which sold for less than it would have been with “Realistic pricing.”
One should always bear in mind that neither the real estate agents nor the sellers determine the market value of a home: Only the market itself does. In other words, the realistic listing and selling prices for a real estate property are established by the buyers who recently bought a property with similar characteristics in the same neighborhood.
According to House Selling for Dummies, “The fair market value of a property is the price a qualified, reasonably knowledgeable buyer is willing to pay, which a seller, not under duress, is willing to accept after the home has been properly exposed to the market”. This is an excellent definition of what realistic pricing should be.
2) The Risks of Overpricing
Here are a few of the negative outcomes of overpricing a home for sale:
Overpricing cancels the novelty effect when the property first comes on the market. This moment cannot be recaptured.
Well-priced homes create a sense of urgency in the buyer/real estate agent communities to act quickly with strong offers and often lead to competitive bidding between buyers, which is the better way to increase the sales price.
On the other hand, overpriced homes kill any sense of buyers’ urgency and can lengthen considerably the lead time to the sale, which then significantly reduces the home value in buyers’ minds. They often think that something must be wrong with the property if it hasn’t sold by now.
Overpricing almost always eliminates the possibility of competitive bidding.
Overpricing actually helps sell other properties located in the same neighborhood at a lower price since they stand out as good values in comparison.
Finally, the sooner overpricing is acknowledged and the price is adjusted, the smaller the negative impact downstream. Price reductions must be big enough to regain the attention of buyers and their agents – typically, at least 5%.
3) Pricing is key to selling your home in a timely manner and for top dollar
To assess the value of your home at the right price, hire a real estate agent who will tell you the truth about the fair market value of your property.
Unfortunately, to acquire a listing, some agents might suggest a list price considerably higher than what market conditions and comparable sales justify, principally because they believe this is what the sellers want to hear. This practice is commonly referred to as “buying a listing”.
Do not hesitate to reach out to me for any questions regarding the current and fair market value of your home.