The Price Is Right...or Is it?

By Mark Arbeit

You’re selling your home, you’ve called a Realtor®, and now you need to decide on PRICE.  Sure, you want to hear what the Realtor® has to say, but you probably already have an idea of how much you want to ask, and it’s probably based upon a number of factors:

• What you originally paid

• How much you spent on improvements

• What you want to do with the proceeds

• What your neighbors are asking for their homes

• How much you owe on the property

While all these factors are important to you financially, and key to your decision to sell, none should influence the selling price. Why? Because none of these factors determine Market Value. 

How is Market Value Determined? 

The Market Value of a property is based upon just three things: (1) condition, (2) location and most importantly, (3) recent comparable sales (“comps”) over the last six months...that’s it!

If you want to sell your home, asking price must be consistent with Market Value. 

If you purchased at the height of the market, chances are you paid top dollar for your home.  This does not mean you overpaid, because that is what your home was worth at that time. However, if the market has declined in your area (as it has in most) and comparable homes are selling for less than you originally paid, Buyers will not pay it now, nor should they, because it would mean overpaying based on current Market Value.

Unfortunately, many Sellers resist pricing their homes at current Market Value. 

They believe pricing realistically will hinder their ability to negotiate.  They want that “extra cushion” for the “lowball offer”. Although this sounds like a good idea, it is not.  When you put a property on the market, you want as many showings and as many offers as soon as possible, and the more realistic the price, the better chance you have.  You impede this marketing process by overpricing. 

Here are 6 proven reasons why overpricing is dangerous:

1. Overpricing may make you miss out on pent-up demand. 

Most activity on a listing comes within the first 30-45 days. An initial high price can discourage Buyers – causing you to miss out on pent-up demand – or tempt Buyers to wait for the price to drop.

2. Overpricing may result in few or no showings. Too high a price will eliminate qualified Buyers, because many Buyers won’t look at homes priced above their ceiling. And Buyers who can afford the price won’t waste time looking at an overpriced listing because they know they can get more house for their money elsewhere.

3. Overpricing helps sell the competition. 

Realtors® may actually use your home’s high asking price to underscore what a good deal their comparable but lower priced listing is, and that other home will probably sell first.

4. Overpricing could frustrate prospective Buyers. 

Prospective Buyers who might stretch their best offer become frustrated when they can’t buy the home they want at fair market value because a seller is being unrealistic.

5. Overpricing will frustrate your own timetable. 

You could become frustrated too when your house fails to sell in a reasonable time, leaving your plans in limbo. Only a price reduction will sell your house faster and meet your "move out" timetable – and in the interim you will have lost time without gaining money.  

6. Overpricing risks lender rejection. 

If you do get a sales contract, it may fall through because of a market based home appraisal significantly lower than the selling price. The Buyer may not be able to borrow enough to proceed with closing.

Just because some Realtors® are willing to take your overpriced listing does not mean it will sell at that price.  Why would they take it?  Perhaps in hopes of persuading you to reduce the price when the home fails to sell, perhaps out of “excessive optimism.”  Regardless, this is never in your best interest: Your home is unlikely to sell until “the Price is Right”, but by then it will be "stale inventory" and may even be suspected of have structural or mechanical shortcomings.

BOTTOM LINE: Buyers are smart educated consumers.  Armed with the right information, smart Sellers are pricing their homes correctly and smart Buyers are making realistic offers.  
Properly priced homes are selling!

(This article will appear in the November 2010 issue of Homes and Land Magazine on stands and on-line 11/5/2010)