There are several key components that go into a very successful home sale. But the most critical of all the components is getting your home priced correctly. Yet their are always multiple reasons why sellers overprice their home.
Some home owners will unwittingly overprice their homes and others will do it on purpose thinking it gives them an advantage. Overpricing your home is never a good strategy when selling your home. In the long run overpricing your home may ultimately cost you more.
Reasons Why Sellers Overprice Their Homes
Emotion Based Pricing
You love your home. It served you perfectly while raising your family, but its time to move on. You have created great memories here and have lovingly improved your home to suit your needs.
When the emotions run high it over takes logic. Being emotional about your home can lead to trouble in many ways. Being highly emotional about your home will make you ignore your agents advice not only about preparing your home properly but also about pricing your home properly.
You love how your home looks but will refuse to prepare your home for today’s buyer’s. Emotion will also make you place a value on factors that have little or no value to the home buyers coming thru your home.
Many of the other reasons given below can in large part be because of emotions. It is important to keep the emotions in check and take a logical approach to selling your home.
Pricing Because of Need
Of course you need a certain amount of money to make your next move viable. You need a down payment, you need money for closing costs, you need money for a mover, etc… But don’t expect to price your home on need alone.
Yes, you do need to net a certain amount of money out of your home sale to make it work. And much of that can be calculated up front to see if it works.
But overpricing your house just because you need so much for your next home is not going to fly with home buyers. You need to price your home accordingly to appeal to a broad range of buyers as well as have your home stand out among the competition.
Zillow Says It is Worth This Much
Funny how when Zillow Zestimate says a home is priced more than an agents calculates the seller’s are right there saying that Zillow says its worth more…. but when the Zillow Zestimate is low no home seller says it is too high lets lower the price to match Zillow.
Pricing a home can be a fickle thing. While pricing is based on reviewing historical data there is quite amount of subjectivity comparing houses. The computer algorithm cannot make those subjective adjustments based on condition, location, etc… Or, even factor in where the real estate market is headed.
It takes a fairly skilled agent to price a property properly based on comparable properties that have sold in the recent past. The only way to price a home with some sort of accuracy is with a comparable market analysis, a broker price opinion, or an appraisal.
The Zillow Zestimate is no way an accurate way to price your home. As a matter of fact Zillow’s own CEO sold his home for 40% less than the Zillow Zestimate. How accurate is that?
No Urgent Need to Sell /Testing the Waters
Putting your house on the market to see if you can get a certain inflated price is a bad way to go. Yet every year many homeowners will try testing the waters.
The problem in this internet age, home buyers know your home has been on the market and didn’t sell. Literally that info is at their finger tips.
A home that goes unsold will quickly get stigmatized in this market. There is actually quite a bit of buyer psychology that goes into buying a home. A home left to stagnate on the market or has gone on and off the market will raise the suspicion of buyers making your home a bad choice. No one else wanted it why should they!!
Remember life changes quickly and there may come a time where you may need to sell your house.
Room to Negotiate
This is a big reason many sellers want to overprice. They know what their house is worth but they think leaving negotiating room will get them to the price they want. Unfortunately leaving negotiating room is a strategy that can back fire.
Overprice even 3-5% and you can scare buyers away , 5-10% for sure will deter offers. In today’s market, buyers are willing to pay asking price, if your home is worth the asking price you will get it. Because of the internet home buyers are more savvy than ever before. They have a good sense of what homes are worth.
But over price for negotiating room and buyer’s don’t even want to get involved in the process of making an offer. As emotional as selling a home is, so is buying. A buyer does not want to get “emotionally involved in process that they think will not have a positive outcome.
Also leaving room to negotiate can market your home to the wrong buyer’s. Say you list your home at $550,000 and it is truly a $490ish house. Your home will not compete in the 550k price range and many of the true buyers for your home will cut their price search at 500k. They won’t even know your house exists.
Paying a High List Price
While this is not as prevalent as it was between 2006-2014 pricing your home based on what you payed for the house is not a way to price your home. While you may have payed a fair price in 2006 the fair price for your home in 2010 could have been significantly less than what you paid.
A homes price is effectively good for one day only. The real estate market goes up and down. You could potentially find your self buying when prices are high and having to sell when prices are low.
Ignoring the True Comparable Home To Your Property
A listing agent will prepare a Comparable Market Analysis or CMA on your property. In many ways it will mirror an appraisal as this is what banks will lend upon. Most buyers will be financing your home and the appraisal can make or break you.
So what is a CMA? It is an analysis of homes that have recently sold, that are similar to yours in a relatively close proximity. An agent will look for homes within 20%+/- square feet of you home, built in roughly the same era, are of a similar style and offer similar amenities with in 1 mile or so of your home.
A CMA will present a minimum of 3 or more similar homes with some slight financial adjustments based on the home many factors. Basing your homes price on one home that fits your pricing needs is a mistake sellers often make. You need at least 3 homes.
Yet many homeowners refuse to accept the homes in the CMA that is presented by their listing agent. Always finding a reason why their home is superior. More land, a recently updated kitchen, a huge remodeling project, etc…. But at the end of the day the criteria I listed above are the big mitigating factors. An agent is going to care you spent a 100k on a 700sq foot deck or 90k on a pool or that you have spent 25k completely sound proofing your basement.
Or worse yet, a seller has predetermined his price on properties that an agent would not consider a comparable. For example if a home recently sold in your neighborhood for 850k that is twice the size of your home, it does not function like your home and therefore will not be a comparable property to use.
Paying close attention the comparable properties for you home is what will get your home priced properly.
Choosing an Agent Based Upon the Highest List Price Given
This is an easy trap to fall into. There is an unscrupulous practice called buying a listing among agents. It is where an agent play’s on a home seller’s emotions and promises a high listing price. Now you may interview several agents and yes their prices will most likely vary but definitely no more than 2-5%.
An agent “buying your listing” will promise they can sell your home for a price that is quite a bit above all the others. And of course you want to believe you can pocket another 20, 30 or 50k more…. who wouldnt!!?
The problem is that the agent with the inflated listing price does not back it up with proper comparables. It is your house and your decision. Make sure the list price makes sense. It all has to do with the comparable properties and it is your responsibility to understand them.
Ignoring Market Conditions
Again, this is one reason why sellers overprice their homes. Ignoring real estate market conditions may not have as much bearing today as it does in a down market. Today, a seller can overprice slightly and be a little aggressive on their pricing. If they missed the market slightly, with homes appreciating so quickly the market will catch up in a couple of months.
But failure to pay attention to current real estate market conditions can lead to overpricing quickly in a down market. In a market with home prices declining even a small mistake in overpricing can have disastrous results. You could end up chasing the market down for months with price change after price change.
Realize markets can turn on a dime. If you received a price on your property 6 months ago it can be quite different than today. It is important to re-evaluate pricing on a monthly basis.
Summary of Reasons Why Sellers Overprice Their Home But Shouldn’t
We covered some of the top reasons why home sellers overprice their homes. The good news is it can be avoided. Work with a listing agent that has a good reputation.
But, more importantly, take the time to understand the comparable properties. Don’t be afraid to ask questions. It is your home and your money and ultimately your decision how you price your home for sale.
Other Home Pricing Resources
- Jeff Nelson Getting Your Homes Price Right
- Bill Gassett The Dangers of Overpricing Your Home
- Kyle Hiscock Pricing Mistakes Many Home Sellers
- Lynn Pineda Why is Your Homes List Price So Important
- Karen Highland Price It Right From the Start
Reasons Why Sellers Overprice Their Home But Shouldn’t is written by Kevin Vitali of EXIT Group One Real Estate.
If you would like to sell your home or buy a new home give me a call at 978-360-0422 and let’s get the process started.
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