Real Estate

The High Cost of Overpricing

I'm a mom, wife, podcast junkie & Realtor.  In this blog, we talk about key real estate topics and explore what it means to create a life we love living. 


Hi! I'm Kaylynn 

The most critical step in successfully marketing and selling a home is setting the right list price.

All sellers want the highest possible return on their property. Pricing the property too low obviously cannot provide the highest return. It’s less obvious, but true however, that pricing a property too high will produce less than the best return. The right price based on the market produces the best return.

When the price is too high, buyers who can afford it won’t see the home because it is out of their price range. Buyers who are in the price range won’t see the property as a good value relative to the other homes in the same price range and will buy something else.

Too high a price is costly because it causes a property to miss it’s market. When a price is too high, buyers who can afford the home  won’t see it because it is out of their price range. Buyers who are in the price range won’t see the property as a good value based on other homes in the same range and will buy something else. Agents will also be reluctant to show the property, except perhaps, to make a competing property look like a good buy. Note, good agents are not those who can sell overpriced homes to gullible buyers; good agents are those who help buyers find & buy homes that are good, fair values.

While there may seem to be no harm in starting high and lowering the price if necessary, testing the marketing can be risky.

Sellers often feel that they want to test the market at a high price. While there may seem to be no harm in starting high and lowering the price if necessary, testing the marketing can be risky. A property receives its fullest exposure in the first two to five week on the market. The best buyers for the property are those who will see the property in the first few critical weeks. If it does not appear to be a good value, they will decide not to buy, and it’s rare that those buyers return to the property later even if the price is reduced. If they do, they may feel they have leverage over the seller and will often negotiate the price down further. Thus, the seller who tests the market may turn away the best of his potential market.

Another danger of testing the market is that the seller will come to believe in what started out as an exploratory price. Even when the marketing provides evidence that the price is to high, the seller will be unwilling to reduce the price. Or, worse, a seller may turn down an offer that is low relative to the asking price but is in fact the best offer based on the market value.

The longer a home stays on the market, the lower the selling price in relation to the asking price.

In an extreme example, a seller whose house was overpriced at $600,000 turned down an early offer of $450,000. A year and a half later the house sold only after the asking price was reduced to $395,000. Overpriced home stays on the market longer than well-priced homes. And, statics from the Multiple Listing Service (MLS) indicate that the longer a house stays on the market, the lower the selling price in relation to the asking price.

An unsold home prevents the owner from proceeding with whatever plans led to the decision to sell.

The owner of an overpriced home risks receiving less than value not just because the price ultimately received is lower than might have been obtained with a more realistic initial price. The high price includes other costs. Some of those costs are financial; a home on the market is an unproductive asset. An unsold house represents financial resources committed to continuing ownership costs: interest, taxes, maintenance and the loss of the potential alternative uses of the funds tied up in the property.

The costs of deferred personal plans cannot be measured, but they should still be kept in mind when pricing a home.

There are also non-monetary costs. An unsold home prevents the owner from proceeding with whatever plans led to the decision to sell: purchase of a difference home, moving from the area, consolidating households, liquidating an estate, concluding a divorce. The costs of deferred personal plans cannot be measured, but they should still be kept in mind when pricing a home.

Because each of us has a great deal of emotional attachment to our own home, a professional agent who can give an objective point of view is vital.

Pricing a home is part art, part science. Like science, the pricing process should be based on evidence: the prices paid for comparable properties in the recent sales. Since no two homes are exactly alike, however, the evidence must be evaluated and a judgement reached. Because each of us has a great deal of emotional attachment to our own home, the judgement of professional agents who can provide an objective point of view is vital.

The right price produces the best return. The cost of overpricing can be very high.


Interested in finding out what your home is worth? Contact me for a complimentary market analysis. I’ll take you through the art and science of pricing your home, so you don’t leave money on the table when you sell, but don’t overprice and risk losing time and money.

 

This article was adapted and based on an article written by Dick Baldwin, Retired Owner of Windermere-Seattle Capitol Hill. 

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