Pricing your home correctly is the single most important factor to consider when you’re selling your home. When you want top dollar, it is best to have the right price the day your house goes onto the market. When you offer your home at its true market value, you’re giving yourself the best chance to get a great price for your home in a reasonable amount of time. Further, research indicates that the longer a house stays on the market, the number of days on market over the average period of time it takes to sell homes that are similar to yours, will work against you, and as a result your final selling price will actually be lower. In the end, you may end up making less money by overpricing, than you would have if you’d priced your house correctly when it first listed.
In a hot market with many buyers (a Seller’s Market), a fair market value priced home could receive multiple offers because people recognize that it is a good deal. It may even spark a bidding war (more than one offer) that will then drive the final offer price above your list price.
In a cooler market, one that has few buyers (a Buyer’s Market), the home will remain for sale until the price moves low enough to attract a buyer. That means the seller is sitting idle when a home is listed above the range of fair market value.
An overpriced home could scare prospective buyers away altogether, as they may think that they are dealing with an unreasonable seller. You may be willing to sell your house for less, however, a buyer may not even bother to look at your home, or make an offer if the home is overpriced from the start. The first two weeks of a new listing are when you should have the greatest number of interest/inquiries/showings, as prospective buyers gravitate towards fresh new listings. Demand and interest wane after the first 21 days or so. That said, you can always drop your price at a later time, however, this can sometimes be a matter of doing too-little-too-late.
If you’re overpricing your home with the thought that you’re building in a negotiating buffer, this is not how you should be viewing your pricing strategy. It is far better to list at fair market value and not negotiate, than list too high and expect to negotiate.
Overpricing your home so that there is room to negotiate is not recommended for the following reasons:
1. The Target Demographic Triangle:
As a Realtor, my job is to market your home. Part of any marketing campaign is having a target demographic-imagine your target demographic as a triangle. Our target demographic gets smaller as the price goes up. As your home’s price goes up, it will appeal to fewer buyers, you will sit on the market longer, get negotiated down anyway, or fail to sell altogether. People interested in your home even when overpriced are not going to pay more for your home. If overpriced, a buyer will still try to negotiate you to the fair market value. So, by overpricing, you’ve lost interest, but gained nothing on the price. The triangle gets narrower because, when you list your home higher, you lose people looking at your listing and buyer showings.
2. Losing Listing Views:
The first place a buyer or their Realtor will see your home is online. As a Realtor, my goal is to get a ton of interest and prospective purchasers looking at your home. When you overprice, your target demographic doesn’t even see your home when searching online.
To put this in perspective: If the data shows your home is worth around $775,000-$795,000 (fair market value range) when comparing it to other similar properties. After learning what your fair market value range is, you then decide to list your home at $825,000, but tell your Realtor that you are open to negotiating your price-you want to list at this price so that you have some wiggle room in negotiations. Wiggle room is great, but you’ve lost a lot of prospective buyers. Anyone whose maximum budget is $800,000 and would be a great fit for your home is going to miss seeing your home altogether, as they are only going to search for homes between, say, $700,000-$800,000. Also, when buyers work with a Realtor to purchase a home, they get email alerts every time a new home in their price range hits the market. If you’re not priced within their alert range, they are not going to know that your property is available for sale.
3. Losing Prospective Buyer Showings
Our next goal after getting views, is it to get prospective buyers through your home. When some agents search homes, they will at times look a little above their clients budgeted price range just to see if there are listings on the edge of affordability for their clients that are worth considering. The average buyer will only look at about 10 homes before deciding to purchase. If your home isn’t in the top ten most price competitive, an agent and their buyer will not book a showing. All of this said, you shouldn’t build price negotiations into your asking price. It may still be necessary to negotiate on the price depending on how your home performs on the market.
There’s nothing wrong with listing your home on the high side of fair value. Home price valuations are just estimates, and not a hard science. We don’t want to leave money on the table. But do not list over that fair market value price range.
There are, however, a few exceptions to the above points. There are some homes that have very few comparable listings, or very old comparable listings in an area where there may have been recent appreciation. These tend to be unique homes, or very rural homes. In this situation, establishing market value can be at times a bit challenging, and sometimes you can then need to test the market by listing on the higher side. Hopefully you will still get enough showings to get feedback on the price. If you get no showings, then that is also a form of feedback. If you don’t get any showings once listed, then it is time to discuss your pricing strategy and consider an amendment.
In conclusion, it is highly recommended that you list at fair market value. Being well-priced and well-marketed, you should be able to get a great price for your home and sell within a reasonable period of time. Once your home is listed, you must listen to what the market has to say and modify and adjust when required.