Reasons Why Overpricing Your Home is a Bad Idea
Most sellers want to maximize the sale of their home, which should never be a surprise to buyers. Unfortunately, some sellers do not understand why overpricing your home is a bad idea, which means they are listing their home at their own detriment. The motivation to get the most money possible for your sale can lead to overpricing your home. It is easy to fall for the common rationales behind overpricing, such as:
- My home is in high demand
- Buyers will pay more because of the area
- The amenities demand a higher price
- Zillow says my home is worth this much
- A neighbor recently sold for top dollar
- I do not have have to sell if I do not get the price I want
- If I do not price high to start with, I will have to sell for rock-bottom prices later
More often than not, overpricing your home backfires and leaves you with nothing to show for your efforts but a stale listing. Incorrectly-priced homes can deter buyers, leave homes sitting on the market for weeks without an offer, and ultimately lead other buyers to believe the properties might be flawed because it is not selling.
If you want to sell your home quickly, it’s important to understand that overpricing can hurt sellers regardless of market conditions. Rather than risk sitting on the market, learn why overpricing your home is a bad idea, and know the tools available to price your property to sell for top dollar.
While there are many reasons why sellers overprice their home, below are four of the most common. If you avoid these pitfalls you could be well on your way to a satisfying deal at a price that benefits all parties.
Overpricing in a Buyers Market
If sellers in your area are trying to unload their homes to a limited number of buyers, setting your listing price too high can result in a lack of interested parties. In markets where sellers are competing against one another to sell their properties, buyers can afford to be more selective and find inventory within their desired price range. If your listing price is higher than comparable homes on the market, buyers tend to move on to other listings without even giving your home full consideration.
Buyers want to get the best deal for their money, so chances are they can find a similar home for cheaper in a market with a lot of for-sale inventory. Even if you do get some interested parties, potential buyers often submit offers below the listing price because they assume there is no competition.
Pricing your home at or below its estimated market value can actually drum up competition, even in a market with plenty of available homes for sale. If your listing price makes the house seem like a lucrative investment, and other shoppers show interest, buyers are more eager to pounce on the opportunity before losing it to someone else.
Overpricing in a Sellers Market
In markets where demand for homes is high but inventory is limited, homes often sell for more than their listing prices because buyers compete for properties. It is tempting to overprice your home in such market conditions because the demand is clearly high. But, if your home is priced noticeably above other comparable homes on the market in your area, your home is likely to fall outside of many home buyers’ intended budgets, resulting in a smaller pool of potential buyers.
Counter-intuitively, you can actually create competition and increase the final sale price by asking for your home’s targeted market value. The lower your listing price is, within reason, the more potential buyers’ budgets it will suit, resulting in a wider pool of interested parties.
When for-sale inventory is limited and multiple parties want the same house, bidding wars often ensue and drive up the sale price of the available homes. By keeping the pool of potential buyers as wide as possible with your initial listing price, you can actually maximize your sale.
Overpricing and Dropping the Price
It can be tempting to list your home price high and then incrementally drop it until you receive offers. While this strategy seems like the best case scenario since you would either receive an offer above market value or drop it until the listing price reaches market value, it usually backfires.
Even if your listing price eventually reaches market value, buyers may ignore it because the “days on the market” is so high. They will assume your house has not sold already because something is wrong with it and proceed to the next listing. The longer your home sits on the market, the more burdened you will be with costs such as maintenance, mortgage payments and property taxes.
Right price your home from the onset and avoid this pitfall altogether!
The Importance of Pricing Your Home Correctly
If you are getting ready to sell, taking the time to price your home correctly can help you avoid a stale listing. Research shows that homes priced above their estimated market values are slower to sell. In fact, homes priced 12 percent or higher than their estimated market value are a whopping 50 percent less likely to sell in the first 60 days than homes priced right around their market values.
Work with a local real estate agent to research an appropriate listing price for your home based on recent sales of comparable homes in your neighborhood. Put in the time to understand your market and price your home accordingly if you want to facilitate a quick sale. Remember to compare your property to similar homes in size, location, and amenities, and upgrades.
For homeowners hoping to sell this fall, focus on appealing to millennials and empty-nesters. Parents with children tend to move over the summer and settle down before the school year begins, while millennial home buyers and empty-nesters conduct their house hunting once the competition from those timeline-based shoppers settles. Finances are going to be a big factor for both of these demographics.
Most house-hunting millennials plan to purchase their first homes while empty nesters may be juggling two homes. Empty nesters might carry two mortgages while they unload their current homes, downsizing to smaller properties to suit their current lifestyles. Both scenarios present financing hurdles. Gain a competitive edge by marketing your property to any seasonal home buyers with listings priced at market value.
A savvy home seller takes into account home value, local market value and potential home buyers before listing. Taking the time to understand each of these factors may help you sell your home quickly and efficiently. While it seems logical that a higher listing price would net you an overall higher sale price, that does not always pan out in reality.
Listing your home at or slightly below its estimated market value can actually drive up prices by creating competition and maximizing your sale. If you want to sell your home for the best possible resale value, price correctly and watch for competitive offers.
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