Over-Pricing Your Home
Avoid market stagnation at all costs!!
Posted on January 15th, 2019
Too often, we see homeowners use the strategy of pricing their home higher than it’s market value, usually they will say “let’s just throw it up and see what happens.” Maybe they aren’t looking to sell immediately, and just want to test out the market, or maybe they are hoping that someone might bite on their ridiculously high valuation. The problem with this strategy is that it relies on the idea that a buyer will either be too uninformed, or just doesn’t care enough to make a *wise decision, and will overpay for their home… the odds of this happening are slim to none.
Homes listed on MLS (the database of home sales) will experience the most activity within the first few weeks of the listing (but only the first time!) This is because the buyers that are looking in the market will want to view all of the new listings that become available. Once the momentum of the initial listing hype dies down, all potential buyers will have already seen the property, and only new buyers entering the market will be seeing it in the future.
Problems From Pricing Too High
The dangers of pricing a home too high are not immediately obvious (hence why we’re writing about it!) When faced with the potential reward of receiving an offer HIGHER than market value on their home, they forget to consider the risk of scaring off actual potential buyers. Every buyer has a concrete price range in mind, and if your home is listed higher than they are willing to pay, they may not bother to entertain the idea of offering on your home, or it may not show up on their radar at all.
The real estate market is highly competitive, especially when there are more home sellers than there are home buyers. By overpricing your home, you are making your competitors (comparable houses) look like an amazing deal in comparison to yours. This is not what you want!! After not being able to capitalize on the first few highly active weeks of the listing, an overpriced home will have a very hard time selling, and will end up selling for below market value.
Why Would It Sell for LESS?
There are some pretty hefty consequences for not taking the listing of your home seriously the first time around (this includes overpricing, bad presentation, hiring a bad realtor, etc.) But how could pricing it too high cause it to sell for less than market value?
Buyers are always looking to leverage a deal. They want to stretch their dollars and get the best bang for their buck (as they should!) When they see a listing that has been on the market for a long time, they will assume that the seller is more likely to be desperate, and they will be more willing to submit a low-ball offer (if they decide to offer at all, that is.) There is a term in real estate called “Buyer Stigmatization,” which is the negative connotation buyers have with listings that have been on the market for too long. Even if the listing price of your home has been reduced to something reasonable and within their budget, they will wonder what is wrong with the property for it to be unable to sell in such a long period of time. The right answer? It was overpriced; the home’s pricing strategy flopped. But they don’t know that. Buyers will assume that there is a critical flaw with the property, and will simply move on to the other homes on the market because they can.
What is the “Best” Pricing Strategy
The most viable pricing strategy is to list it at the right market price, and to inflate the price marginally to offer some room for negotiation. Finding that true market value is easier said than done, when we price our homes, we factor in your home conditions, upgrades since previous sale, interest rates, functionality potential, economic trends, and supply and demand. It’s an extensive process, but that’s how we know that our listing prices are accurate and effective towards the sale of a home. We actually offer to do this (obligation free) for all Kingstonians, even if you don’t plan on listing with us. So if you’re interested, give us a call and we would be happy to find out your homes true market value! 613.483.5444.
Bonus: The Underpricing Strategy
On the flip side of things, if you price your home under its market value, you can probably expect that it will sell for exactly what you ask for, and lightning fast. BUT, if the stars align and you play your cards right, you can actually cheat the system (so to speak) and may get MORE than your home’s true value.
In order for to make the most out of underpricing, you must be listing in a “Seller’s Market” (more buyers looking for homes than there are homes available.) If the home is priced mindfully, the deal may be so enticing that once your listing hits the market, multiple buyers will be looking to offer on your property. This could put all of your potential buyers in a bidding war against each other in a multiple offer scenario, which can lead to conditions being waived in the spirit of competition, and an inflated selling price. This is very risky and is definitely not the route to take every time, but it is always a good idea to ask your Realtor if this is a good solution for your home!
Finding Your Market Value
Whether you decide to take the high route and list your home at its market value, or decide test your luck against the market with an underpricing strategy, you’ll need to know the true market value of your home. We routinely do CMAs for free, so give us a call and we will come by to assess the home conditions, upgrades, and functionality potential to leave you with your home’s market value. Simple as that! Call us any time at 613.483.5444 – just let us know that you found the number through this article!