A Fish Story (Must Read) Avoiding the Pitfall of Overpricing
Is it to receive a generous estimation of the value of something you own? That jacket must’ve cost you $700! How did he ever pay for such an expensive engagement ring? Those kinds of compliments make most people beam with pride. A classic car, lovingly restored, antique heirlooms, and even sports memorabilia fetch top dollar at auctions every day. Surely a home is no different.
They Were Dazzled
When Dan and Julie* decided to put their home on the market, they were dazzled by the $339,000 price tag a realtor suggested to them. Finally, a professional that recognized the value of Dan’s meticulous landscaping, Julie’s fabulousdecorating touches, the countless weekend DIY projects, and superb housekeeping. None of the other realtors they had talked to had any appreciation for these things. Excited and flattered, they signed a contract with the agent and began eagerly researching a home to buy with the even bigger equity they would soon net after closing. Every day, they worked hard to keep their beautiful home in “show-worthy” condition, perfect and polished. At first, most weekends were devoted to open houses and showings, with Dan and Julie disappearing for hours while potential buyers traipsed through.
And it sat there. (Insert sound of crickets here)
Spring and summer faded to autumn, cooler weather, holidays and a slower real estate market. Along the way, they agreed to periodic price reductions, dropping the listing price to $332,000, then $325,000, then $319,000. Showings were rare, at best, and by this point and the frustration of months of living in “sell mode” was beginning to take its toll. Other properties in their subdivision were listed and sold, some within days or weeks, and their wonderful home languished stale on the MLS month after month. *Not their real names
So what went wrong?
Dan and Julie were victims of the shiny, sparkling lure of overpricing. Their realtor rolled out a dazzling, shiny top dollar price tag, higher than had been previously suggested to them by other agents they had interviewed. Appealing to the owners’ pride, sentimentality, and desire for maximum equity, some realtors will utilize this tactic to coerce the homeowner to sign with them. Like slick game show hosts, they entice the seller to make a poor decision because of the chance of a big win. The reality is that where there is a lure, there is a hook. And as you drop your price every few weeks, you are still paying your mortgage, insurance, HOA dues, maintenance, utilities, etc., etc., etc. More equity is whittled away with every turn of the calendar page. And that’s not all. The stigma of a stagnant
listing brands your house as undesirable. Like the leper among the healthy houses. Brokers and realtors may steer clients away from your listing. After all, it’s been on the market 284 days, so something MUST be wrong with it.
1. How do you know if your home is overpriced?
Pricing is not comparable to the other listings in your neighborhood. A trustworthy real estate professional will recommend a fair market price that has been established by expert analysis of comparable sales in your area. The process of selling a home is serious, and a whimsical spin-the-wheel pricing approach is folly. Your home must be priced in the same ballpark as similar ones in your neighborhood.
2. Pricing based on irrelevant factors.
When considering pricing your home for sale, did you try to factor in expensive repairs and upgrades? Big mistake! The ten grand you forked over for all new light fixtures, a new A/C system, and added insulation will not increase your home value dollar for dollar. The buyer might hate your fixtures, not care about energy efficiency, and the air better work, or he will ask you to knock thousands off your price if he is even still considering buying. Your stack of receipts does not impact a fair market price.
3. Has the phone stopped ringing?
The showings have slowed to a crawl or none at all. A lack of “buzz” is a bad sign.
4. Have you had a nibble on the line?
If weeks and months have gone by without a single offer, you should review your price. Most sellers get a little tug on the line now and then.
As a seller sitting on an overpriced home, you might ask yourself, “Why doesn’t someone just make me an offer? “ You budgeted in some wiggle room, after all! The sad truth is that you have spooked your potential buyer, like the kid who throws rocks in the water where you are fishing. In the case of Dan and Julie, most buyers home shopping in their area were qualified for $299,000 or less and didn’t want to waste time with a listing that was $40,000 out of their league, especially since there were lots of other fish in the sea. Those that did bother to tour their home were not prepared to insult the seller with a lowball offer. Many lookers erroneously assumed that offers had been made and rejected, further discouraging a negotiating initiative.
It has been estimated that up to 70% of homes listed are initially overpriced, requiring one or more reductions before they eventually sell. Statistics also indicate that of the overpriced listings that do end up selling, the average sales price is only 87% of their original asking price. Even more disturbing, these stagnant homes languish on the market for an average of 120 days. A correctly priced home, on the other hand, averages 45 days on the market with an average selling price of 97% of the original list price.
So what happened with Dan and Julie?
When their contract expired for the third time, they kept their home off the market for a few months, relisted with a different agent, pricing the home at $292,000 and got their asking price about five weeks later. All told, however, it was more than a year wasted because of a crucial error at the beginning of the process. In today’s market, the “aim high and drop the price later” strategy costs time, money, and aggravation. The simple fact is that the longer your home sits on the market, the lower the offers you receive. Buyers see you as becoming desperate, and see the house as a lemon- a money pit. It does not matter if these things are true; it is their perception that costs you. Correct home marketing is like shooting fish in a barrel!