7 Things to Consider Before You Overprice Your Home
Overpricing your home is a bad idea. It's one of the biggest mistakes sellers make and fail to realize it until it’s too late. The reason overpricing your home is such a big mistake is because when people overprice their home it loses value and there are a number of reasons why this happens which we will discuss in this article.
In our local market of Raleigh, NC the market is HOT. Homes sell fast. The ones that don't sell fast are in trouble. Chances are they overpriced their home and they will have to sell for less than it's true value. There are strategies to help overcome overpricing your home which we will discuss later in this article.
Naturally, a seller wants to make the most money on the sale of their home. Anyone who is selling a home wants to net as much money as possible on the sale. One thing most sellers don’t realize is that you will make LESS if you overprice the home. It is not uncommon for a $5,000 dollar difference in list price to swing a greater than $10,000 net either!
When determining a list price for a home, it is very tempting for sellers to inflate the sales price significantly. There is a common misconception that listing a home above market value will lead buyers to place higher offers on a home than it is worth. Remember, Realtors® wants your home to sell at its highest possible price, that's how a Real Estate Agent makes money.
Unfortunately, that is not the case. Buyer’s agents, and oftentimes the buyers themselves, usually know when a home is overpriced. With the vast number of market research tools and the ability to find sale prices easily on the internet, buyers and their agents will do extensive research prior to putting in an offer. If buyers see that similarly sized homes in your area are selling lower than your asking price, they will know that the home is overpriced.
Most buyers don’t want to waste time touring an overpriced home since they know the seller’s expectations are unrealistic. For that reason, and many more that we’ll cover in detail below, overpricing your home may lead the listing to sit on the market for months on end without offers or showings.
Why Overpricing Your Home is a Bad Idea:
1. Buyer Demand
The first few days after initially listing your home are critical, as this is when you will get the most views of your listing online. If your home is priced well above market rate, you run the risk of scaring off buyers, significantly decreasing buyer demand.
Buyers working with real estate agents lean heavily on their agent’s market knowledge. A good agent will know immediately if your home is priced above the market and will inform their buyer that it is not priced well. They may also talk the buyer out of seeing your home in fear of wasting time looking at an overpriced home. Buyer’s agents also don’t want to deal with the hassle of having to negotiate an offer with a seller on an overpriced home. For example, if a home is listed for $600,000 but is actually worth $500,000, the buyer’s agent will have to put tremendous effort into getting a seller to even consider an offer at $500,000, which many agents know better than to waste time doing.
Sellers who overprice their homes often assume that they will find a buyer who is not working with a realtor and will not know that the home is listed above the market rate. However, this is not typically the case. Even if a buyer is not using a real estate agent, they will still most likely avoid looking at your home because they will see that it is out of their price range. They most likely will also do research ahead of time so that they are well informed on market pricing.
Sellers sometimes incorrectly assume that every single improvement they have made to their home translates into a higher price. Unfortunately, a home’s price is determined by the amount that homes are selling for in their area – not by the new faucets or cabinets. If you are planning on making costly renovations to your home in the hopes of getting a higher price, consult with a realtor on what work should and shouldn’t be done.
2. Days on Market
The longer a home sits on the market, the less appealing it is to buyers. If buyers see your home has been sitting on the market for several months, they will assume there is something wrong with the property.
Here’s the other reality about overpricing a home: the longer the home sits, the higher the chances are of the market changing unfavorably. If the market turns downhill, you may have to drop the selling price to considerably lower than the market rate was when you had listed it initially, leading to a greater loss.
When homes are priced reasonably in line with the market, sellers have a greater chance of the home selling quickly, possibly in as little as two weeks, avoiding the possibility of the market turning sour.
The fastest way to know if you overpriced your home is by the number of showing requests you receive – especially when the home is initially listed. If your home has been on the market for several weeks and zero buyers have shown interest in scheduling a showing, that is a tell-tale sign that your home may be overpriced.
When sellers do not receive showing requests, they typically assume that hosting an open house will help drive interest. However, if the home is overpriced, those attending the open house are most likely just nosy neighbors who are interested in seeing what the home looks like and not interested in actually putting in an offer. Having several people attend an open house may make the seller feel as though they priced their home correctly, but if no one puts in an offer – even those who expressed interest at the open house – the seller may grow extremely frustrated and discouraged.
4. Price Reductions
Every time the price is reduced on a home, buyers will become increasingly suspicious. What is wrong with the home that the price keeps dropping? Buyers may also take note that you have been consistently dropping the price every few months and may just be waiting to make an offer until you bring the price down a bit more.
5. Stale Listing
Listing a home for sale can be a costly endeavor. Many sellers hire professional cleaning companies to clean their home once or twice a week in preparation for showings and open houses. If the home sits on the market for months on end, this may become quite costly. Sellers typically spend money on marketing as well, which can also be very expensive. The longer the home sits, the more money will need to be funneled into marketing, leading to more wasted funds.
If you are in a strong seller’s market where homes are selling for higher prices than usual, you may miss out on that opportunity by pricing much higher than you should. If you price your home competitively, however, you may sell your home in as little as a month or two.
If the real estate market turns particularly sour while your home is listed for sale for an extended period, you may have to drop your home price to below market value, meaning you may make significantly less than you could have on your home.
6. Lowball Offers
Overpriced homes will most likely receive offers that are at or below the market rate. This leads to tremendous frustration on the seller’s part and a lot of wasted time and energy turning down lowball offers. For this reason, strong realtors typically will not even take on a listing if the seller’s list price expectations are unrealistic. Realtors do not want to waste their time, and constantly turning down or attempting to negotiate low offers can just lead to a lot of wasted time, money, and effort on the realtor, seller, and buyer’s behalf.
The longer your home sits on the market without offers, the more desperate you may be to sell it – especially if you need to move within a certain period of time. After sitting on the market for months on end, you may receive a lowball from a buyer – lower than you probably would have received had the home been listed at market rate. Feeling desperate, sellers may actually consider these low offers or, shockingly, even accept a lowball offer simply because their home has been on the market for so long that agents and buyers have completely lost interest in it.
Did my Realtor Overprice my House?
In most markets, particularly throughout both Raleigh and Charlotte, North Carolina, a home will typically receive an offer 2 – 3 weeks after being listed. Even if it is an offer you don’t want to accept, most homes will at least have something. If your home has been on the market for several weeks (or months) and you haven’t received any offers, your home may be overpriced. Similarly, if your home has been on the market for several weeks and you haven’t had any showing requests, your home may be priced incorrectly.
If you are suspicious that your realtor overpriced your home, you can compare what other homes in your area are selling for. To do that, search online for homes in your neighborhood that are similar in size. If they are on the market for significantly less than yours, your home may be overpriced.
When selling a home, sellers typically interview several realtors before deciding who to list with. If most realtors valued your home at $400,000 but one agent valued it at $550,000, he/she is probably trying to overprice your home. The realtor may be very persuasive and the thought of getting $150,000 more on your home than you thought you would is tempting, but the chances of actually getting an offer significantly above the market rate are extremely rare. The more likely scenario may involve the points mentioned in this article: your home will sit on the market for months on end without offers or showings, leading you to eventually drop the price to what it should have been in the first place.
How to Sell an Overpriced House:
If you sense that your home may be overpriced and your realtor pushes you to keep it at that price point, it may be worthwhile to re-list your home with an agent who has a better grasp of the market. Take new, updated pictures and write a new property description to help give the listing a fresh boost. Conduct your own careful research on how much properties are selling for in your area. Don’t solely rely on your realtor, take the time to research prices yourself as you don’t want to make the same overpricing mistake twice. Only list when you are confident you have priced your home appropriately with the market.
How to Identify Overpriced Homes:
Compare neighboring homes
The fastest way to know if a home is overpriced is by looking at how much neighboring homes are selling for. If most homes in the area are selling for $500,000 but one similarly sized home is listed for $675,000, it is most likely overpriced.
Check days on market
If a home has been on the market for an extended period of time while the homes around it have sold relatively quickly, the home could be overpriced. If the home doesn’t appear to have anything noticeably wrong with it but has been sitting on the market for a long time, the list price is most likely the problem.
How to Make an Offer on an Overpriced Home:
Making an offer on an overpriced home always starts with research. Determine how much the home is actually worth by looking at similar home sales in the area and provide the seller with your research to back up your offer. After they see the numbers, they may be willing to come down a realistic price. If you really want the home and they don’t seem willing to budge, you may need to get creative in swaying the seller. To make your offer stand out, consider including flexible closing date, minimal contingencies, or a large deposit. If you show the sellers you are willing to work with them, they may be more likely to consider your offer – even if it is lower than their asking price.
Be prepared to negotiate quite a bit and possibly increase your offer. The sellers may not accept your initial offer but, with some negotiating, may be willing to accept something higher than your offer but still below their list price. Working with a realtor is extremely beneficial when negotiating offers, especially on overpriced homes, as they have the experience necessary to help sway sellers.
What Happens if I Price my Home Too Low?
If you price your home too low, keep it at the current price but hold back on offers until you have a buyer come in above the asking price. Be wary of pricing significantly below market, as that will just lead you to lose money on your home, but pricing it slightly under market may lead to several buyers competing for your home and working to outbid one another.
Overpricing a home is a tempting thought to any seller. Sellers understandably have a strong emotional attachment to their homes and tend to value the home much higher in their minds than what the market numbers indicate. This is extremely common, which is why sellers should work with trusted realtors who have a strong understanding of the market, have sold several homes, and know your area very well.
Most sellers don’t realize they overpriced their home until after the market lets it sit with a ‘for sale’ sign in the yard for months. After a certain number of days, the home becomes stale and the seller begins to showcase their desperation with a price reduction. I’ve seen homes drop 40% from their list price and still not be able to sell, simply because they overpriced the home when they listed it.
Sellers have conditioned some Real Estate Agents to tell them what they want to hear. The Real Estate Agent does this out of fear the seller will choose to work with another Agent. Whether you are using a flat fee listing service or a Real Estate Agent you need to be sure that the person isn’t afraid to tell you the things you don’t want to hear. Working with a Real Estate Agent you trust is crucial.
Sometimes I hear sellers say things like 'well I upgraded this, this and this' as if because they spent money they should automatically be redeeming that money in the price. Not every home upgrade is going to add value, some home upgrades are a huge waste of money.
Oftentimes sellers say things like ‘my real estate agent wants to price my home too low’ and they assume the Agent is doing that to make it an easy sell. This is totally understandable from a seller’s point of view and yet it couldn’t be further from the truth. Your Real Estate Agent likely wants to price your home in a way that will create the highest demand. The higher the demand, the more your home will sell for. The more your home sells for, the more money you walk away with as a seller.
Hi there! I'm Ryan Fitzgerald, a REALTOR in Raleigh-Durham, NC and the owner of Raleigh Realty. Chances are you and I share a similar passion, Real Estate! I also have a passion for technology, sports, and people. Would love to hear from you. Drop me a note in the comments section below and feel free to share this article socially!