They were a couple of retired schoolteachers. And they were proud of their ranch-style house, with its vaulted ceilings and gazebo-shaped breakfast nook off a gourmet kitchen.
So when it came time to sell, the couple asked their agent for a calculation of the home’s worth and then decided to tack an extra $10,000 on top. Their reasoning? “We’ll just test the market for a while and see what happens.”
But three months later, after many admiring lookers had trooped through, the retired couple had yet to bag their first offer on the property. And, as the urgency to sell set in, they felt compelled to cut the price $10,000 below market. At that price, of course, the house sold quickly to an opportunistic buyer.
The moral of the story? “Greed is answered with greed,” says Michael Scott, who sells homes through the Re/Max realty chain.
Fully 60 to 70 percent of home owners are tempted to overprice their houses at the beginning of their listings, though half of them are talked out of the idea by their agents, Scott says.
What seems like a common-sense proposition-to start high because you can always come down later-almost inevitably backfires on home sellers, real estate experts say.
“Overpricing your home just flat-out never works, and that will never change,” says Bill Barrett, a real estate speaker who trains salespeople through his seminars.
Actually, there is one time when pricing over the current market value could make sense, Barrett allows. “You can overprice in a place that’s going through rapid appreciation.”
In areas where homes are gaining value at the rate of 20 percent or more per year, you can afford to start your listing at a high point, figuring that the market will catch up by the time you close on your sale.
The problem is that there are precious few neighborhoods where homes are appreciating that rapidly. Indeed, flat prices or depreciation continue to plague home owners in many communities throughout America. And home sellers who try to deny this reality are often punished for doing so.
Among the groups most tempted to overprice are those with one-of-a-kind properties who think they should collect a premium because their homes are unique. In fact, explains Barrett, the market often demands a discount from those selling unusual homes. That’s because there are fewer buyers with unusual tastes, so it typically takes longer to sell an oddball property.
Trying to overprice your home is natural because of the personal attachment you’ve undoubtedly formed to the place and because of your cultural background.
“In this society, we’re all capitalists. It’s kind of in our heritage to get as much as we can,” says Scott, who is affiliated with the Residential Sales Council, a professional organization of top-selling U.S. agents.
Are you seduced by the “let’s-test-the-market” thinking? Then here are four good reasons to change your mind:
1. Overpricing could cost you your very best prospects.
These days, virtually all buyers work with real estate agents and virtually all agents are plugged into the network known as the “Multiple Listing Service.” Before a buyer heads out on a house-hunting expedition, his agent pulls listings on a batch of properties in the buyer’s price range.
Now, suppose your overpriced house, which lacks a garage, falls into a batch with five other well-priced houses that all have garages. Upon seeing your place, it will take only a matter of minutes for the prospect to reject your property on the basis that they can get more home for the same money.
2. Overpricing hurts you most during the prime time of your listing.
The most excitement your home will ever generate will be during the first few weeks of your listing, when it’s fresh to the market. Qualified buyers who have been bird-dogging your neighborhood will want to see it right away.
But because they’ve been watching your neighborhood, they’ll also know immediately that it’s overpriced relative to the other properties they’ve seen and will undoubtedly spurn it.
Will that prospect ever come back if you reduce your price later? Probably not. In a market with lots of choices, chances are they will have moved on to select another.
3. Overpricing can screen out prospects from your target market.
Good agents take pride in prescreening properties for their home-buying clients. In recognizing that your home is overpriced, the buyer’s agent may well omit it from the batch of potential homes his client might see.
4. Overpricing can lead to scotched deals.
In rare cases, you may be able to find that one naive buyer foolish enough to fall for your over-market price. But does that mean you’re home free? Often not, Barrett says.
As he points out, more than 90 percent of the homes in the United States are financed through mortgages. And mortgage lenders nearly always demand a professional appraisal that backs up the selling price. If the appraisal comes in low, your deal could well be in jeopardy.
