This mistake is one of the most tempting on the list! You can always lower your price later… right?
We totally understand that you want the most for your home. That’s what we want too! The problem is that listing your property too high can mean less money for you. We’ve seen it hundreds of times. How is that possible?
It’s simple: Buyers start their search online many months in advance and are more educated than ever before. They know what homes are on the market and what they sell for. Many buyers also have a Realtor helping them to analyze how competitively priced each property is. If your home does not compete with similar homes they are seeing, chances increase that these buyers will pass it over and buy something else, or just wait to see what else comes up.
You would think buyers would just “make an offer” if they felt the price was too high. They usually don’t, though, and here are a few reasons for this.
1. Fear of insulting the seller.
Most buyers feel bad about making a low offer on a home for fear they may insult the owners. In reality, we’ve heard sellers say a low offer won’t insult them and yet when they receive one, even they are surprised how upsetting it is. A deal is unlikely to happen if it offends either party.
2. Fear of overpaying for a home.
Buying a home is an emotional process. Buyers know they can become emotionally attached. One way they subconsciously protect themselves is by not offering on a home that’s overpriced. They know that they are at risk of spending more than they can really afford if they get too involved in negotiations.
3. Fear of wasting time.
In a fast-paced market, this is a stark reality. The steps on the way to making an offer often involve a serious time commitment. Buyers don’t want to miss the opportunity to make an offer on a “hot new listing” to waste time negotiating on an overpriced listing that they may not buy after much time spent.
From here, there are two potential outcomes:
- Your listing sits on the market long and becomes “stale.”
- You get an offer you like, but the appraisal comes up short.
Let us consider scenario one, the “stale” listing. When a new listing hits the market there is often a flurry of activity. If buyers feel your property is well-presented and offers good value, they make offers and the home sells with 1-77 offers (not kidding). On the flip side, however, in much the same way your favourite potato chips become less desirable as they age. Properties that stay on the market too long become boring – stale. This happens for two reasons. Either the property IS less desirable than others, or it becomes PERCEIVED as less desirable. Sadly, both have the same effect. In a fast-paced market (like the one we’ve been experiencing for many years now), buyers assume that if a property has been sitting on the market for a while, something must be wrong with it. This will often cause them to pass over the listing online and not bother booking a showing.
From this point the situation worsens. You have two options, you either keep your price the same and hope that right buyer comes along, or you consider a price “adjustment”. A reduction is the better of the two options, but it’s difficult to get buyers back who have seen the home and made a conscious decision not to buy it. They may not even remember the reason they chose not to buy. But by reducing the price, you acknowledge the error in pricing and/or that something was wrong with the house. From here on, your showings will be to buyers new to the market or buyers looking for a steal. As a result, you will probably need to consider reducing to an asking price that is less than you would have sold for if you had priced your home at market value from the outset.
Another issue that can arise (albeit not as common) is a low appraisal. If you have sold your home conditionally for a record value, congrats! Unfortunately, you may not be out of the woods yet, as a low appraised value from the bank can place your sale in jeopardy. As part of the buyer’s financing condition, the property may be subject to a bank appraisal. Banks have become more thorough in recent years because they want to ensure that the home is not overvalued. Example: If you sold your home for $650,000 but the most recent sales show that market value was closer to $600,000, they would require the buyer to make up the difference ($50,000) on top of their already determined down payment. This could deal a fatal blow to a transaction where the buyer doesn’t have the needed funds.
As you can see, there are many disadvantages to over pricing your home.
Advantages of Proper Pricing.
There are many benefits of proper pricing.
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- Quicker sale – buyers will see value and bring offers fast.
- More offers / better offers – we may see multiple offers and offers with fewer contingencies.
- Increased exposure, marketing results – a better priced home will show up in more search results of qualified buyers.
- Less inconvenience – you won’t realize how much better this is until you’ve been on the market for a few weeks / months.
- More control over terms – you’ll have more bargaining power on other important terms, like closing date and inclusions.
- Fewer headaches – No offers, low offers, and offers where you feel out of control.. vs the total control
Need we go on?
