THE HIGH COST OF OVERPRICING
The most critical step in preparing to market a home is determining the listing price.
All sellers want to realize the highest possible return from their property. Pricing a property too low of course will not provide the highest return; pricing a property too high will definitely produce less than the best return. The right price produces the best return.
PROPERTY MISSES ITS MARKET
When a price is too high, those buyers for whom the home would be suitable won’t see the house because it is out of their price range. Buyers who are in the price range of the asking price will not see the property as a good value and will buy something else. A professional agent will be reluctant to show the property, except perhaps to make a competing property look like a good buy. Credibility is key with value and pricing.
TESTING THE MARKET
Sellers often feel that they want to test the market at a high price. This is risky. A property receives its fullest exposure in the first three to five weeks on the market. The best buyers for any property are those choice prospects who see a property during those first weeks. If it does not appear to be a good value, they will decide not to buy and it is rare that such buyers or agents return to a property later, even if the price is reduced.
Another danger of testing the market is that the seller will come to believe in what started out as an exploratory price. Even when the market provides evidence otherwise, the seller will be unwilling to reduce the price. Or, what is worse, a seller may turn down an offer that is low, but which is the best offer that will be received. In an extreme example, a seller whose house was listed at $550,000 turned down an early offer of $450,000; a year and a half later the house sold only after the asking price was reduced to $425,000.
INCREASED MARKET TIME
The overpriced house stays on the market, and statistics from the Multiple Listing Service indicate that the longer a house is on the market, the lower the selling price in relation to the asking price. It becomes a “stale listing.”
OTHER COSTS OF OVERPRICING
A home on the market is a non-productive asset. An unsold house represents financial resources committed to continuing ownership costs: interest, taxes, maintenance and the loss of the potential alternative uses of the funds tied up in the property.
An unsold house prevents the owner from proceeding with whatever plans led to the decision to sell: purchase of a different home, moving from the area, consolidating households, liquidating an estate, concluding a divorce.
Pricing a home is part art, part science and much knowledge. The pricing process should be based on statistical information: the prices paid for comparable properties in recent sales. Since no two homes are exactly alike, however, the evidence must be evaluated and a judgment reached. Because of the emotional attachment to a home, my impartial view is vital. The right price produces the best return – ALWAYS.