Dangers of Over-Pricing Your Home

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Dangers of an Overpriced Home

Dangers of an Overpriced Home

You’ve decided to put your house on the market. You’ve given it a lot of thought, weighed the pros and cons. You’ve talked with your family and together you’ve determined that now is the time.

Before the “For Sale” sign is placed in your front yard, you have some more decisions to make. Possibly the most important is the list price of your house. How much are you hoping to get for your home? What’s fair and reasonable in this market? What will appeal to the most potential buyers? And what are the risks of pricing your home too high?

The slippery slope of over-pricing

If your home is over-priced when it’s first placed on the market, the most obvious risk, of course, is that it simply won’t sell. You may think your home is worth $10,000 more than the house down the street, but if the houses are structurally similar (e.g. both have three bedrooms, two bathrooms, a finished basement and a two-car garage), the average homebuyer is going to gravitate toward the lower-priced of the two homes.

Because buyers don’t want to spend more money on a house than they have to, over-pricing your home could cause it to sit on the market for a long time. And the longer it sits, the less likely it will sell.

When potential buyers see that a home has been listed for six months or a year, a common first thought is, “I wonder what’s wrong with it.” They assume a house that’s in good condition would have sold much sooner and the fact that your house is still on market must mean that something’s wrong – either it needs a lot of work or has significant structural issues, etc.

You can always lower the price later, right?

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Homeowners who set high list prices often do it because they figure if the home doesn’t sell in a month or two, they can just lower the price – no big deal. However, at that point, some damage has already been done.

The house has been on the market for months, becoming less attractive to potential buyers with every passing week. In addition, a sudden drop in price has the same effect as an extended listing period – buyers wonder what’s wrong with the house. Both factors can squelch interest in your home.

Why some real estate agents shouldn’t be trusted

Unfortunately, some homeowners list their houses at inflated prices because a real estate agent has convinced them it will sell at the higher price. Homeowners typically meet with two or three agents before choosing one to work with. At the meetings, agents present the homeowner with a Comparative Market Analysis and give an estimate for the home’s list price.

There are, however, agents who intentionally suggest a high list price, knowing it increases their chance of getting the business. Agents refer to it as “buying a listing,” and it’s incredibly dishonest. Agents who buy listings know they’re overpricing the home. They fully intend to drop the price in a month or two, but all they’re concerned with is getting the listing.

Real estate professionals who have been in the business for a while know which agents “buy listings.” Most avoid doing business with those agents, partially out of frustration, but mostly out of a desire to protect their clients.

Agents who buy listings are considered unethical and untrustworthy. Consequently, homeowners who list with those agents find their homes sitting on the market longer, not only because their houses are over-priced, but because other agents are not showing the home.

What may happen if you manage to sell at a higher price

If you price your home too high and it does sell, you could still run into trouble. Once a home sells, the potential buyer has to qualify for a mortgage. The home will be appraised and that appraisal will be the maximum loan amount available to the buyer.

For example, let’s say you priced your home at $225,000 even though similar homes sold for $200,000. A buyer loves your home and makes a full-price offer. Then comes the appraiser, who – based on prevailing market conditions – values the home at $200,000. This is one of the few circumstances under which a buyer can walk away with no consequences. He is not required to execute the purchase agreement, because your home’s value is less than the agreed-upon sale price.

Think carefully about your home’s sale price. Research other homes that are listed in your area. If you’re talking to multiple real estate agents, you’ll be tempted to go with the one who suggests the highest list price. Resist that temptation and think objectively about what’s already on the market and how your home compares.

In today’s housing market, you’ll have a lot of competition. Do everything you can to give yourself an edge – including setting the right sale price.

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