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Pricing your home too high can be damaging. Overpriced homes sit on the market, day after day and month after month while the price gets lowered. The listing becomes stagnant, and buyers assume there is something very wrong with the house thus avoiding it. Eventually, there will be a buyer out there who knows they can get a deal on the house and make a lowball offer.
The first 30 days on the market are the most important. This is when the most showings will occur. Having a home that is priced too high, will push buyers away and they will choose to ignore it or bookmark it to check on the status of the price later. The longer the home sits unsold, though, the more negatively it is viewed. Buyers believe it is overpriced or there is something wrong with it. Waiting too long to drop the price will mean most likely losing the people who have bookmarked the home as they have probably already moved on and bought something else.
Additionally, if the home is on the market too long, potential buyers will think they are in a better negotiating position and end up tossing out a real lowball offer. Even when the negotiating begins, it will be less than the original asking price. To attract the most potential buyers possible, the home must be priced correctly from the onset of its going on the market.
If by chance a seller is lucky enough to get an offer on their overpriced home, there is still a hurdle to get over. The home may indeed be in a desirable neighborhood and have all the bells and whistles, but for the buyers to get a mortgage, they need to have the home appraised. The dollar amount the bank will lend the buyer is based on the appraised value of the house rather than the agreed-upon purchase price between the buyer and seller. The appraiser will use the prices of recently sold nearby comparables to help determine the value of your house.
If the home does not appraise at the price the buyer offered, the seller will either need to reduce the price to meet the appraisal value or the buyer will need to come up with additional funds to make up the difference. Not many buyers are jumping to ante up more money on even their dream home if the appraised value is not matching. Sadly the home will end up back on the market with additional expenses and adding to the days on the market.
Another issue is that any good realtor who is showing homes to buyers is obligated to do what is best for their clients and showing a well-known overpriced home is something they will steer clear of. Properties shown to buyers will meet the current fair market value. They will wait until the price is eventually reduced. If then, the lowered, overpriced home is shown, the buyers will look for all the things that are wrong with it – because they know there has to be if it’s on the market for a long time. The real problem all along was always the price.
Picking the right realtor is the key to a successful sale of a home. Interview several agents before choosing one and have them write out how much they think they can sell the home for. If one gives a significantly higher number than the others, be wary. It’s unfortunate but some realtors will throw a high number into the ring just to get hired. The realtors should come armed with the comps (competitive market analysis) and be able to back the number they came up with.
Some sellers mistakenly believe that Zillow’s pricing estimates, called Zestimates, and other online valuation tools can be used as a good barometer for estimating the price of their home. Beware of these tools and websites as they will never replace a good real estate agent who knows the local market and their estimates are usually far off the the actual selling price of a home.
The Bottom Line: When a house starts overpriced, it almost always ends up selling for less than market value. By pricing it high to drop the price later, you are completely bypassing the best candidates for buyers. They will look for homes for sale that are more accurately priced. Experienced real estate agents know that pricing a home appropriately from the start is critical to getting it sold quickly and at the best price.