When sellers set an asking price for their home I always imagine big dollar signs in their eyes. Most human beings suffer from wishful thinking and confirmation bias. How should you price your home: high, low or right at market value? In other words, should you overprice or underprice, or price it right at market value? If sellers are underpricing they may hope to sell faster, or hope for a bidding war. Overpricing a home may allow you to get more for your house than it’s really worth with luck and hope that one buyer loves your home. Underpricing or overpricing your home can be a gamble. And the best thing you can do is come to terms with how much your house is really worth.
Overprice or underprice – let’s look at overpricing
If you are overpricing your home, a realtor may agree to this just so they can get the listing. I have heard numerous realtors tell me, “I took the listing but it is overpriced, but I figured I can get them down on price later.” The downside to overpricing your home is that you are wasting critical marketing time, which is the first 14-30 days on the market. A terrible scenario is having no offers early in the process and then your home becomes old news. Once your house is on the market past 30 days, buyers may figure out that either your house isn’t worth the asking price or there is something wrong with it.
Read more about Finding a Realtor to List Your Home for Sale
Buyers and their buyer agents are watching you. If you drop the price, it will be obvious to everyone that your price was not a fair to begin with. And that price drop usually has to be a considerable amount. I talk more about that in my blog: Would a Dress Store Do A 1.5% Off Sale? Ask yourself as the seller if dropping the price by a small amount will really give you the best results, and more than one interested buyer. Multiple interested buyers sounds like a better option to me.
Overprice or underprice – let’s look at underpricing
When underpricing your home it could lead to a sale within the first 30 days, which saves you from becoming a stale listing. That way you get more viewings and possibly a bidding war. But you may also sell for less than it is worth. However, I feel the market is a very efficient mechanism, and a home almost always sells for about what it should sell for. If you priced a $500,000 home at $480,000 my guess is that you’d get around $500,000. Pricing a $500,000 home at $200,000, my guess is that you’d get around $500,000. But pricing a $500,000 home at $580,000 my guess is also that you’d get around $500,000.
Isn’t the asking price more of a marketing tool?
There are so many variables that affect real estate prices which is probably why there isn’t a Kelley Blue Book for homes. Homes are not commodities. They are usually very unique with lots of variables. Have you ever sold anything on eBay? Chances are you found out if you priced your item too high, no one would bid on it. If you priced it too low the final selling price was possibly at a loss and you ended up giving that item away. But selling a home is much more complicated than selling on eBay.
To help, consider four factors to determine your success in pricing a home to sell.
What are houses selling for in your area? Find recent sales within the last 3-6 months preferably that are similar to yours with the same amount of bedrooms, baths, and square footage. What are the sale prices? How long have houses like yours been on the market? Are you in a good school district? Did you make some updates to the home? How dated is your home? It’s always a good idea to check out the competition and see how other home sales are doing in your neighborhood, but you have to adjust upwards and downwards for the things that your home does not have or does have over the competition.
I’ve heard of pricing strategies that vary depending on if it is a seller’s market or buyer’s market. If the market is cold and it is a buyer’s market, and market prices are moving down, you may want to price lower than recent sales and get out in front of the next wave of price reductions. In other words, if your home is worth $400,000 based on recent, comparable sales from the last 3-6 months, but the market is moving down about 1% a month, then you should price 3% to 6% below the recent comps since they are 3-6 months old. In a seller’s market with pricing constantly marching upwards, then you should be able to ask for and get a bit more than 3 to 6 month old comparable sales.
Many buyers are getting a loan and will require an appraisal. An appraisal is supposed to represent the true value of a home as judged by a professional appraiser. If the appraisal comes in low below the sales price, the buyer could decide to walk away from the purchase. If they stay in the deal, there will be new price negotiations. Read more about what happens when an appraisal comes in low.
Overprice or underprice – Use A Realistic Selling Price
I think the best advice is to price your home realistically. If it sells within 30 days, that only proves you priced your home reasonably. Hoping for the one buyer with lots of money that has to have your unique home and will pay anything to get it is usually like looking for a needle in a haystack. Besides people will usually only pay what they feel something is worth. If your house isn’t selling for the asking price, perhaps it isn’t worth what you think it is or the market may have over-supply, and you need to adjust your asking price…quickly.