Pitfalls of Overpricing
Many real estate experts advise to price a property for sale that is in line with the market but despite this logic, many sellers feel like it is necessary to leave room to negotiate and purposely price the property a few percentage points higher ultimately expect to end up. To understand the cost of overpricing a property there are seven problems that can occur as a result.
1. Valuation Problems - If you are lucky enough to find an emotional buyer (one that doesn't mind the inflated price) 90% of the time buyers will use some kind of financing to pay for their home purchase. If your home does not appraise for the purchase price by the bank's valuators you will most likely lose the buyer because they will not be able to obtain a loan. Not only that, you will have wasted a lot of your own time and emotions as well. (Hint - bank valuators use the comparable properties on the market so the sellers should too)
2. No Viewings - More than 80% of home buyers are well educated and use the internet for the initial real estate search. If they can clearly see that your home is overpriced, the odds are that they won't want to bother to take a look at it in person, let alone make an offer. Hence the agent will not be able to create a platform of competition to attain the highest possible price, a proven strategy when executed by our highly skilled brokers at ABC International Real Estate.
3. Branding Problems - When a new listing hits the market, every (good) agent quickly checks the property out to see if it might be a good property for their clients. If your home is immediately identified as being overpriced, agents will dismiss the property. As a result, reigniting interest may take drastic measures (i.e. massive price reductions) and you might end up lower than where you could have been if you had priced the property right the first time.
4. Selling the competition - Overpricing helps other properties, not you. By overpricing your home, you make other properties with lower prices seem like bargains.
5. Stagnation - The longer your home sits on the market, the more likely it is likely to become stale. Ask yourself - have you ever seen a property on the market for such a long time and asked yourself "what is wrong with that house?"
6. Tougher negotiations - Buyers who do offer on your home may negotiate harder because they have more leverage and most likely they will be the only ones even interested in your home. Sellers who finally get a buyer will oftentimes settle for much lower prices than where they wanted to end up because having a home on the market without receiving any attention can be emotionally draining.
7. Lost Opportunities - You will lose a percentage of buyers who are outside your price point. These are buyers who are looking at the price range that the home will eventually sell in but initially their searches will not match their criteria because it will be in a different ballpark and the home will be above their pre-set budget.
Most buyers will oftentimes look at 10-15 homes before finally making a decision to buy and because of this competitive pricing that inspires activity not only among buyers but agents as well can be the biggest way to get the best price possible.