Why overpricing your home is a costly mistake in oh so many ways.

When you sit down with the typical client at the listing appointment, it is easy to get caught up in the feel good moment of pricing the client’s home.    The client has many reasons for wanting to have the price set high.   Some being, not qualifying as a short sale, having more money left over to pay off debts, more money for a down payment for next home, or paying for that long sought after vacation.  There needs to be a soft reality interjected into the listing appointment, unfortunately many agents just don’t want to go down that road, they want to just simply accept the price that the sellers are happy with and hope they change their mind down the road. 

We understand that the reality is many clients choose their agent by who says their home is worth the most, forget the fact that no matter how much the client loves their home, or how much they want the neighbors to see how their home is worth, it just doesn’t make any rational sense.  It does not matter what the agent thinks, or a handful of agents think, sadly it does not matter what the client thinks their home is worth.  It only matters what the “Market” knows is the value, and what those potential buyers value the home at. 

The pricing is an art, mixed with science, or a sciart (yes I made that up, so if it sticks you can thank me), you can make many psychological pricing tweaks and adjustments with comparables in mind, to come to a decision that will stick.  This does not mean it is the end all be all, but simply a good educated guess.

In today’s market, pricing a home too low is not much of a problem as this will probably start a bidding war and raise the price to the level the listing agent wanted in the first place (a common practice we advocates do not care for).   Too low, and the other agents will surely catch on and be wary of making offers, thus hurting the listing in the long run. 

Pricing a home too high has many, many negative attributes that come along with this sort of practice.  For the homeowner, they become frustrated with the agent that the home is not selling when they themselves approved and wanted the higher price.  They will blame an agent who told the client that the price was too high.   Many consumers will not even see the property on their searches due to the fact that if they are looking for a home less than $200,000.00 and your home is $200,000.00 then most searches cut off at $199,999.00 and thus you don’t even come up, or if the agent is smart and realizes most homes are priced low, they will pull up homes lower than $150,000.00 knowing that bidding wars will reach higher than the client can afford.  So your home is not even being pulled to be shown.

Having an overpriced home also means that the home will sit on the market for too long and then the buyers simply move on thinking that there is something wrong with the home.  It also over-inflates the comparables in the neighborhood and creates a false sense of a market in that neighborhood, sending shock-waves through the comparables and thus tearing down a whole neighborhood in the process.  Many agents don’t think of the market as a whole, but when they pull the potential listing’s competition, a few overpriced homes which are more money makes the client feel as if they need to also price theirs up that high, and thus creating an entire map of homes overpriced destined to fail.

The homes end up staying on the market many, many, months, even a year or so and the agents get fired and a new one gets hired, and then fired, and finally the home owner frustrated ends up selling all cash at much lower than expected.  They are upset, the agents fired are upset, and the domino effect on the rest of the homes rises exponentially.

In the end it costs the seller and the agent a lot of money.  It costs the seller money in interest, and mortgage payment that were paid the many days it was on the market too high, utilities, and possible cost them the home they wanted to buy because this home was sold on contingency. It costs the seller in value because the seller is not going to try that hard for a market worn, stale, and old listing.  It costs the agent in time and marketing money, as well as the headache and stress in dealing with the after effects of a client listing gone wrong.

Make sure you look at all the reasons a home does not sell.  The reason a home does not sell may not be just price, it could be that a home seller does not wish to put a sign out front, (usually for vain reasons), which is much akin to winking at a pretty girl in complete darkness, no one knows your doing it but you.  Put a sign out, many potential buyers drive around selecting homes, this is free advertisement and should be utilized.  Also how does the home look, should it be spruced up?  Higher market value homes also have another reason for failing to sell.  With these type homes, the sellers only want appointment only, or no lock box, I call these appointments for failure listings.  Good luck selling a home you can’t show, there are far too many homes these buyers will see that don’t have these restrictions and the buyers get the last laugh as the home sits and waits for an even lower market.  Don’t let this happen to you as a seller, or to your clients, as agents, it does no one any good to not state the truth in the beginning.

Well that was our 8 cents, remember to listen to our podcast and subscribe today!  Feel free to comment on this or any of our other blog postings.  http://realestaterant.podbean.com

Comments

[Andrew Cayabyab from BUS-30 Spring 2010]

Today's society is all about making money. Making money the easy way. I totally agree with your view Mr. Carrigan. People try to get the most out of everything. When people put their house on the market they understand that it is a type of business however they don't really care for how the business is ran. Homeowners just want to get their money and leave. They don't understand the true process of getting the accurate value of selling their home. When someone decides to put their home on the market they instantly become a businessmen. Every move they make when it comes to selling their home can be a hit or miss. Nowadays, people need to accept that they are people who do their job very well and will give you sound advice even if you don't agree with what they are saying. I say let the experts do the talking and learn from them.

[Jacqueline Smith]

ive never looked at it like that, wow. This is really interesting, im going to fwd this to my brother, he would love this information.

[Eric Webster]

I can't fully understand why people have unrealistic ideas about what something is worth. I have been so surprised in my life by what someone wants for something. I have been even more surprised by what someone will pay for something that I wouldn't give anything for. The public is a tough boss, as my Uncle Don would say. Over pricing of a home is simply an manifestation of arrogance and vanity. To be honest I have never heard of someone not wanting to put up a sign in front of their house! It seems in this market that you have got to do what ever it takes. Arrogance and vanity prevent people from being reasonable and intellectual about the market value of their home. But arrogance and vanity are usually rooted in a little (or a lot) of fear or insecurity. They are defense mechanisms to ideas that make them uncomfortable, preventing them from doing something outside the norm or just thinking a little outside the box. People will never change. The best way to attack this problem is to approach the home owner prepared to address their fear and insecurity. If you do this you can take leaps and bounds towards success in pricing their home.