The Dangers of Overpricing Your Home
People would have laughed at you if you had told them a decade ago that they can’t over price their home. The internet has made it easier than ever to learn just about anything you want. So with all this content and information available, how did you know which ones to learn from and which ones actually work?
“Luckily for you, CORE Member, for today’s blog we will be talking about the dangers of overpricing your home. Remember, that while the first step is completing any of this amazing blog, the second and possibly more important step is taking action even if it’s imperfect action.
It’s obvious why you shouldn’t overprice a house. It will not sell! The chances of your property selling for what it should if priced correctly from day one are slim, in addition to not selling when you overprice it.
Many people are not adequately prepared for the emotional roller coaster that can be the home selling process. You must reconcile what your home means to you and what you envision it to be with the realities of the current real estate market.
Pricing your home is where this conflict is most obvious.
To sell it, you’re putting your house on the market. Although it might seem obvious, you’d be surprised at how many people overlook this crucial fact when they start the process of listing their homes. This is the aim of everything you do during the listing and selling process. Even though it’s one of your most prized possessions, the most crucial aspect of selling your house is the price the market will accept.
A surefire way to prevent your home from selling is to try to price it too highly, whether it’s because you invested a certain amount in it or because it holds special sentimental value for you. The fact that you need X dollars from your house because you are making an outside purchase is irrelevant to buyers. A buyer only concerns themselves with paying the fair market value. Nothing will blow up in your face more quickly than a property that is overpriced.
In actuality, the number one reason why a home doesn’t sell is overpricing. You have the option to list your house for any amount you like. However, a top-notch real estate agent will inform you that overpricing a property can result in significant issues.
A real estate expert is best suited to handle the delicate task of pricing your home. The sale of a house is one of the biggest and most emotional transactions you’ll probably make in your lifetime. While you and your agent will want to maximise the profit from your sale, you must be mindful of the risks associated with overpricing your home. Many people are unaware that setting your home’s initial price too high could result in you receiving less money for the property than you would have if you had done so!
We spoke with one of our mentors, a Real Estate Expert at HomeCity Real Estate, who said, “It’s very common to receive multiple offers – often above list price – on an appropriately priced home vs. an overpriced home. They can see the recent renovation expenditures they made or the sentimental value of the items. Since a buyer won’t notice these details, it’s crucial to price your home fairly based on comparable sales in the area.
The first step in correctly pricing your home is to be aware of the market you are entering. You can get away with pricing your house a little higher in a sellers’ market than in a buyers’ market. A dangerous oversight is not being aware of where your current competition stands in terms of price and days on market, according to one of our mentors. “It seems obvious to find out how the other homes around you were priced when they sold,” he or she says. “This will show you what your market conditions are. You can tell that your market is softening if comparable homes in the last 90 days sold for $200 per square foot within a few days, but now homes priced at or just under $200 per square foot have been sitting for a few weeks. You are aware that, simply put, your buyer pool is no longer willing to pay that.
One of our mentors suggests that home sellers consider the local real estate market and set their home’s price appropriately. Why is this crucial?
Bringing in Scam Real Estate Agents
Your home’s initial asking price might attract dishonest real estate agents, who you might not realize are a bad sign until it is too late. Real estate agents want to work with clients who have reasonable expectations because they are in the business of selling homes.
Numerous issues arise when trying to sell a home that is overpriced, so many agents will shy away from taking on a listing that is doomed to failure. Sincere real estate agents will tell you if your expectations for your home are higher than they should be. There are agents, though, who will only give you the information you want to hear.
One of their strategies involves overpricing a house. To get your listing, they will encourage you to have high expectations, only to later inform you that your price needs to be reduced because the ideal selling window has passed.
Why on earth would a real estate agent want to accept a listing that has no chance of selling, you might be asking.
There are a few reasons why a Realtor would intentionally tell a seller that their home is worth more than it actually is.
- The first is using your house as a means of buyer client recruitment through advertising.
- The second is an attempt to persuade you to sign a listing agreement with them because, absent your agreement, they will not be able to outperform a reputable real estate agent.
Some real estate agents don’t give a damn about selling your house; all they care about is keeping their yard sign there for the next three to six months. They want to be able to advertise your home online while also attracting buyer clients that they can “spin” away from your property because, you know, they won’t pay way too much for it.
You should reduce your price by $25k Mr. & Mrs. Seller right away after receiving a lot of buyer clients over the past few months, some agents will finally get around to saying, “boy am I, sorry the price I gave you for your home doesn’t seem to be working out.” Sorry for making fun of you!
Selecting a real estate agent based on the suggested list price they give you for your property is one of the biggest mistakes home sellers make. Avoid falling for the oldest trick in the book! A bad agent’s strategy often includes overpricing properties. There are many excellent real estate brokers who do not have to overvalue a property as part of their strategy. Your task is to track one down!
Inadvertently scaring away the best buyers can prevent you from ever having the opportunity to show them your home. Real estate agents frequently work with buyers, and a skilled agent can tell an overpriced house from a mile away. These brokers will advise their customers to stay away from your house.
Buyers will frequently avoid a home that appears to be much more expensive than others in the neighbourhood, even if they are not using an agent. People want a good deal, so positioning your home at a premium will turn away buyers who fit this description.
Pay close attention to the market’s potential. Analyse the comparable real estate sales information from the perspective of the buyer rather than the seller.
The conviction that each home improvement they have made over the years results in a one-for-one increase in value is one of the traits shared by home sellers who overprice their properties. Unfortunately, that is not how real estate valuation operates. When selling a home, there are some expenses that yield very little profit.
Take Far Too Long To Sell
A home’s days on the market will balloon if it is overpriced! Some sellers are more driven than others to close deals quickly. Though not everyone is aware of how much time matters in real estate sales.
The best time to sell a house is when it goes on the market, which is typically in the first few months. If you delay too long, you run the risk of having your listing expire, which is a stain that is difficult to remove from a property.
You run the additional risk of the market shifting against you. If you initially price your house competitively, you’ll probably be able to take advantage of whatever the market is doing to sell it within a month.
But if you wait too long, the market might turn against you. You will have to drop much lower than you would have initially to move the property because your home started off too high when the market turned sour.
Realtors frequently hear statements like “I can wait for a great offer,” “I’m not in a rush,” “I have plenty of time to sell and can wait for my price,” and “I can always reduce my price later” from home sellers. However, what many of these sellers fail to realize is that in the real estate industry, time is your enemy!
When considering a home seriously, every buyer’s agent gets the top query: “How long has this home been on the market?”
As a seller, you are in charge when you first put your house up for sale. A purchaser isn’t. They are aware that if they want to buy the house, they must be practical.
Depending on the market, the pendulum will eventually swing the other way, giving the buyer the impression that they are in control at that particular moment. This is because the number of days a property has been on the market has a significant impact on the price a buyer will accept.
Buyers will start to wonder what is wrong with this house when the days on the market rise above average. Why hasn’t another party made a proposal?
More than someone who just listed, buyers will feel like they can negotiate with someone whose home has been on the market for months. This is a very typical thought process and just part of human nature. Contrary to popular belief, overpricing a property does not result in a higher sale price. The complete opposite is true.
Not Appearing In Search Results
In today’s market, consumers and real estate agents both use search engines and consumer multiple listing services to look for homes. Even though they were created especially for real estate, they still operate pretty much the same as every other search engine. The search returns results that match the criteria you specify when you enter the desired parameters.
If you set the price of your home at $420,000, anyone looking for homes up to $400,000 won’t find it in their search results. For illustration, suppose you met with a Realtor who estimated the market value of your house to be between $385,000 and $390,000. The agent suggests setting the list price at $400,000 because she anticipates some minor haggling. The agent is aware that asking a price above the $400k mark risked pricing your house off the market.
Instead, you choose to price your house at $420,000 because you think a higher list price will result in a higher sale price. You may envision attracting buyers who are willing to bargain with you, but in actuality, many buyers will pass your property up entirely because they are only looking for properties up to $400,000. On the other hand, pricing in line with comparable sales data will guarantee that your home is seen by everyone in your neighbourhood looking for a place to buy.
Buyers frequently start their home search online, usually with a set of search criteria based on their budget. Pricing your home too high will frequently result in potential buyers missing out on your listing. For instance, you want to ask at least $30,000 for your house when you sell it. With the expectation that people will try to haggle with you, you price your home at $320,000. Clients occasionally fail to realise that a buyer with a $300,000 budget will not see this listing because their search frequently says something along the lines of “homes priced up to 300,000”. Pricing your home at $299,000 and waiting for the offers to flood in is the better course of action. Your home should receive several offers if it is priced correctly, and you should probably get more than $300,000 for it.
According to the 2015 NAR report on homebuyers in America, 80% of buyers discovered their home online. This percentage rises to 84% for the under-35 age group, who make up our largest share of buyers, Lambert claims. To increase your chances of selling for your asking price, you should make sure that as many of these potential buyers can see your listing.
Issues with Home Price Appraisal
Let’s say you manage to attract a customer who is willing to pay the price you are asking. He or she just so happens to think your place is ideal and is prepared to purchase the house from you at your asking price. There is only one issue: they must obtain funding from the bank to cover the cost.
Every bank requires an appraisal of any property before making a loan, and yours will be no different. How ideal you believe your home is, or how well it suits this specific buyer, neither matters to your neighbourhood appraiser. The appraiser is subject to market forces, and as such, your property will be valued accordingly.
The bank will probably hesitate to grant the buyer a mortgage when the appraiser returns with a market value that is noticeably lower than the price the buyer is offering. This could turn a sure sale into a failed mortgage application, forcing you to look for additional buyers.
When a buyer needs a mortgage to pay for their purchase, an appraisal is required. To make sure the house is worth the money the bank lending them the money is lending them to pay for it, the bank will order an appraisal. If the house’s appraisal value is significantly less than the sales price, the bank will not lend the buyer the money to purchase it.
“Assessment problems! Low appraisals can kill the sale of your home, warns Lambert, and they have been a pain in the side of many Realtors for the past 24+ months. “Even if your target audience of buyers could see how your property stands out from its less expensive rivals, it’s likely that the much more risk-averse appraiser won’t. Since buyer’s agents are aware of this, they won’t even bother to show your house. Please be aware that regardless of how many updates you’ve made or how much they cost you, each neighbourhood has its own definition of what is “acceptable” (in terms of price).
A skilled real estate agent must be hired because accurately pricing a home is an art. Know what comparable homes in your neighbourhood are selling for, as well as what the market will bear. To ensure a smooth sale, stay informed about market trends and avoid overpricing pitfalls.
The incorrect buyer is drawn to an overpriced home.
A home that is overpriced will not be competitive with the homes in a buyer’s price range that are realistically valued. Your house won’t sell if it lacks the amenities, square footage, or other features of homes in the price range you’ve set for it.
Homes that are overpriced sit on the market for a long time and could go “stale.”
When a home first enters the market, interest in it is always at its peak. Buyers frequently wonder what is wrong with a property when an overpriced house sits on the market for a long time without selling. Even if you lower the price, buyers who move on from a listing rarely return.
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