The Pitfalls of Over Pricing A Home
Why is that home still on the market? That’s a question many people ask as they drive by the same for sale sign in their neighborhood week after week and sometimes month after month. Why do some homes fly off of the shelf and others languish for months?
Whether or not a particular home sells quickly or not has often little to do with the market and more to do with the presentation of the home—including the pricing. In today’s tech savvy real estate world, home buyers have nearly unfettered access to listing information. With all of the tools available it’s hard for buyers to miss out on seeing a home and equally difficult for buyers to not have a good idea what a home is worth.
The first issue for homes which languish on the market is often that the promotion is at times lackadaisical. A newly listed home without photos is often overlooked by many buyers. Knowing how to promote and price a home are key ingredients in selling a home quickly.
But why is selling a home quickly important? First and foremost it’s about price. Most sellers want to get the most amount of money they can for their home. Statistics demonstrate that selling a home in the first several weeks will accomplish that goal.
Looking at all the single family home sales in Belmont for 2010*, homes that sold in the first 14 days—an adequate time to market a home to an eager audience—accounted for 36% of the total sales.
These homes on average sold for $10,000 over the seller’s asking price—often with multiple offers. Homes which sold between 14 and 21 days on the market accounted for only 9% of the homes sold in 2010 and they sold for on average $20,000 less than what the sellers were asking.
Homes which languished on the market after 21 days accounted for a whopping 55% of the total homes sold and the sellers received on average $90,000 less than their initial asking price while averaging a painful 88 days on the market. These numbers are actually very understandable. When a home is first on the market a buyer who may be interested in the property cannot affix an absolute value to the home. If there are multiple offers from multiple buyers the price is often bid above the asking price and the winning bidder is usually the highest bidder and thus has paid more for the home than any other willing and able buyer on that particular day. Once a home is on the market for several weeks, buyers still might not know exactly what the home’s value is but they know it’s not what the seller is asking or the home would have sold. And that is where the damage begins. Time will do more than anything to hurt the sale of a home. After weeks of marketing buyers assume there must be a reason why nobody has selected that home and they invariably infer that there is something wrong with the home itself. Counteracting this misimpression is difficult since your agent can’t proclaim “there’s nothing wrong with the house except the price” since most surely there is always something wrong with every home.
Agents Don’t Create Value.
It’s the listing agent's job to inform the seller of comparable values in the area by reporting on what homes have been selling for and what their competition is but agents do not create value, although they can add value. A good agent will typically give the seller a range at which point they can expect to attract a reasonable number of willing and able buyers in a reasonable amount of time. This is why it’s difficult to under price a home and easy to miss the mark by pricing too high. A home underpriced and allowed sufficient marketing time can and almost always will be bid up and often above what might be considered fair market value at the time, while an overpriced home will most surely garner less than what it would have had it been initially priced in the sweet spot.
If you’ve missed this spot it’s not too late. Making a price reduction quickly can thwart the dreaded doomed house syndrome tip the scales your way and bring a fresh batch of buyers to the bargaining table. Drew and Christine Morgan are REALTORS® in Belmont, CA employed by RE/MAX Star-Carlmont. MorganHomes.com The information contained in this article 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.
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