Overpricing your home can cost you more than a few dollars.

By
Real Estate Broker/Owner with Cornerstone Business Group Inc 0225086119

                  Overpricing your home can cost you more than a few dollars.

Anytime a home is listed, the seller and the listing agent have a decision to make. What is the listing price? What does the market tell you about where it should list? There is an unfortunate tendency to look at the home you've lived in with rose-colored glasses. That's often where overpricing a home starts. The list price of a home has to be an unemotional decision. It is a market driven number, and no amount of memories will change that.

The perils of overpricing your home: Wishful Thinking vs Wise Thinking

Overpricing your home normally starts out with a conversation that goes something like this:

Agent: So, what is the price you have in mind for listing your home? Here are the comps that show where it should be listed. The market is saying it should be right at $385,000 for a reasonably quick sale.

Seller: Oh, that's not enough. After all, we've painted everything, we've had landscaping done and besides that, it's just worth more than most homes in this neighborhood. My kids grew up here.

Agent: How much more?

Seller: I was thinking around $400,000. That will give us room to negotiate. We can always come down if we need to.

That's based on the premise that all buyers want to negotiate, have no clue what a home is worth and are willing to throw money at a home because of the sentimental value it has to the seller. All three of those assumptions are wrong.

Not all buyers want to negotiate, or are even willing to negotiate. Also, buyers are more advanced today. They have access to all kinds of online data that makes them well-informed about a property long before they even consider it, and beyond that, nobody wants to pay more money for a house than it's worth. Your sentimental values don't equate to more value in a piece of real estate. The real value of your home is not personal for others, it's practical. What does the market say?

The perils of overpricing your home: Lost Income

If the list price of $400,000 is as little as 4% over the market comps, then a few things are likely to happen. Based on historical data, a smart buyer's agent will know before going to the house that it is overpriced by up to $16,000. Granted, the agent may assume that the buyer has a little wiggle room and may be planning to use that gap for negotiations.

That brings up a dilemma for the buyer. Is it worth the time to look at something that is overpriced, or should he/she move on to similar houses in the correct price range? Will it be a waste of time making an offer that is $16 K over the value of the property?

Of course, there is also the appraisal issue. A lender will only loan on the offer price or the appraised value, whichever is lower. If the appraisal comes back at $384,000, will the seller drop the price to meet that number, or will the seller expect the buyer to come to the table with more money than the house is worth?

In my 2018 market, the average home sold for 2% below the asking price. In our scenario, the appraised value was $384,000. If a seller wants to sell to a buyer who is not willing to overpay for a home, the price will need to come down $16,000. At the $400,000 list price, if market norms come into play, the house should sell for $392,000 if the list price is correct. But, it will not, because the appraisal came in lower.

The perils of overpricing your home: Costs that are not factored in.

If the property lingers on the market because of the inflated price, the seller may have a series of expenses that keep coming throughout the process. For instance, there are mortgage payments, electric, water and tax bills. The seller needs to keep the electricity and water on for inspection and appraisal reasons. Those expenses will not stop throughout the listing.

The longer a home sits, the more likely that it will sell for less. In my market, the first 14 days are the typically the best days for a good offer. The longer a home sits, the more likely it will become stigmatized and fewer people will want to look at it. In this case, the buyer will likely lose $16,000 off of list because of the appraised value. Factor in a few home inspection repairs, mortgage payments, electric, water and taxes and the loss of income could easily exceed $20,000 plus.

This past year, I had a wonderful couple ask me to sell their home. I did the market analysis and found what they should sell for. At the same time, I had a second couple ask me to sell their house. Again, I did all the market analysis and found a good list price.

A tale of two couples

I asked the first couple, "Do you want to sell fast, or can the property linger on the market for a while?" They wanted to sell fast. With that in mind, we listed at my suggested price based on neighborhood comps and the home sold in the first 60 minutes it was on the market, for full price.

The second seller, wanted to take advice from a few non-real estate professionals, and the house sat on the market for 103 days before an offer came in. He paid the mortgage payments, water, electric, taxes, HOA and a number of maintenance issues that came up while the house sat. He finally accepted an offer that was -6.5% lower than the non-professional suggested list price. If he had listened to the pros, he would have sold for -1.7% below list. The local average sale is -2% below list.

It's important to hire professionals who know the market and can guide sellers to the best course of action. If sellers ignore their seasoned advice, they have no one to blame but themselves when a property doesn't sell, or when it sells for less than they wanted.

When you're ready to sell, and when you're ready to hire smart professionals, give me and Cornerstone Business Group, Inc., a call. We are your neighborhood real estate sales pros, and we know our market. You'll receive expert advice and guidance throughout the process.

 This post was originally posted at www.winchestervarealestate.com: Overpricing your home can cost you more than a few dollars. #mikecoopersellshomes, #cornerstonehomesales, #overpricingyourhome.

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Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

Not to mention the cost of owning for an additional 90 days.... insurance, interest, etc.... 

I literally just had this "do you want to list your house or SELL your house" conversation with a seller today.

Jan 02, 2019 02:05 PM #1
Rainmaker
3,977,611
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

Over pricing can make less people look just because of price.  Less people less offers if any

Jan 02, 2019 03:16 PM #2
Rainmaker
2,473,727
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

You're absolutely right, Mike. There can be costs to overpricing a home.  And, I've been a fly on the wall in real estate offices where agents have seen an over-priced listing when it came to market, dismissed it for showing, and never really returned to it, even after a price drop.

Jan 02, 2019 04:26 PM #3
Rainmaker
511,307
Francine Viola
Coldwell Banker Evergreen Olympic Realty, Olympia WA - Olympia, WA
REALTOR®, In Tune with your Real Estate Needs

So true and this post covers a lot of ground on how overpricing is the kiss of death for sellers.  

Jan 02, 2019 07:40 PM #4
Rainmaker
2,825,275
James Dray
Fathom Realty - Bentonville, AR
Exceptional Agents, Outstanding Results

Morning Mike.

This is something I want to print out and hand it out at our next meeting.  It should be a good discussion 

Jan 03, 2019 01:33 AM #5
Rainmaker
2,473,727
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

CONGRATULATIONS Mike, on having this blog FEATURED in the Old Farts Club group!  

Jan 03, 2019 08:46 AM #6
Rainmaker
3,173,788
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Mike, in my market we have these same sellers and agents that go along with the "over pricing method" Just to give you an example I had a well known agent in my market list a vacant lot for $49 million after a year the sellers came to me and we listed it for $22.5 million after I asked if the wanted to sell it..and we did sell it...Endre

Jan 06, 2019 04:19 PM #7
Rainmaker
511,307
Francine Viola
Coldwell Banker Evergreen Olympic Realty, Olympia WA - Olympia, WA
REALTOR®, In Tune with your Real Estate Needs

So true and the points are very well written.  Overpricing, time and time again, financially ends up being a very poor path for sellers to choose.

Jan 06, 2019 07:25 PM #8
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Rainmaker
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Mike Cooper, GRI

Your Neighborhood Real Estate Sales Pro
Winchester has a place for you! Call me.
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