Real Estate News with Terri Taydus, GRI, CNA

The Pitfalls Of Overpricing Your Home!

July 1st, 2012 10:19 PM by Taydus Taydus

Summertime is a great time to buy or sell a home! With interest rates remaining low, now is even a better time to jump into the market, make that upgrade you have been wanting, or simply move to a new area.

Unless you are getting into the market for the first time or moving here from a new / distant location, chances are you are not only a buyer but a seller.

If you are selling your home there are a couple of very important things to keep in mind:

Choosing the right listing agent: The right agent is not always the agent that will list your home for the highest price.

Keep in mind that Real Estate (like anything else) is a business. Realtors earn their living and pay their bills by selling Real Estate. As with most businesses there are multiple business models out there that we Realtors can follow, some more successful than others. The term “Success” means something different to everyone. Some consider it a fat bank account. Some consider it a job well done. Some consider it a happy client. Some consider it a healthy and happy lifestyle. I see it as all of the above. I do not think you can sacrifice one for the other. However you need to be careful when choosing the right Realtor to list your home, that he or she sees success the same as you do (or at least something you can both agree upon.)

There are very “successful” Realtors out there that follow the business motto of “get the listing, no matter what the cost”….well maybe that is not their exact motto, but it should be :) You need to be very in tune to this type of pitch. They will look through your home then tell you what you want to hear in terms of list price. They will most likely not bring the most recent comps to substantiate the price….or if they do, the comps will not be real (i.e. they will be for homes that are larger, in a more desirable location within the neighborhood, etc.) You need to be a savvy seller. Be objective when looking at the comps that were used and see if they are realistic. Often times, because a Realtor knows that they are overpricing the home, they will insist that you agree to a “ladder clause” in your listing contract (not ALL ladder clauses are bad. Just be aware if you are being sold a bill of goods and being asked to agree to a ladder clause because the listing agent knows that they are suggesting an unrealistic list price.)

You want an agent that is going to deal with you honestly and fairly. Think about it; most Realtors work on commission. Don’t you think we all want to get the most for the sale of your home? So ask yourself why would a realtor come in with supporting comps and suggest you list your home for less if they didn’t believe that it was the right thing to do in order to get your home sold? You should be suspicious when a realtor suggests a “too good to be true” list price. Sometimes they are just trying to get the listing knowing that they can drop the price later vs. acting in their seller’s best interest and pricing it correctly form the start.

Make sure the Realtor you hire is the Realtor that will be handling your transaction.

  • Who will be answering your questions before, during and after your deal closes?
    • Who do you call or email when you have a question or concern?
  • Who will be dealing with the buyer’s agent?
  • Who will be negotiating on your behalf?
  • Who will be at the closing with you?

Support staff is great, but you deserve to have the Realtor that you hire be the same person that is handling the important details of the sale of your home.

Don’t be fooled by the “I’ve sold xxx homes in this area!” Although not a bad thing, and certainly could play to the Realtor’s credibility, some good questions to ask would be:

  • What was the difference between the original list price and the sale price of the homes you sold?
  • How many days do your listings typically sit on the market?
  • How many price reductions do your listings typically experience?
  • You can request MLS printouts and histories that show any price reductions, for the listings the Realtor has sold.

Overpricing for fear that you will be “negotiated down” by the buyer (i.e. leaving too much “wiggle room”): Depending on the market, this may be okay to do if in a very small amount (i.e. one or two thousand.) Some sellers want to over-price by $5,000, $10,000 or more. This does more to hurt you than help you.

First let’s talk about market value. The market value is always changing and it is determined by what a willing and able buyer is willing to pay for your home. It does not matter what your neighbor’s home sold for last year….or even six months ago. When determining the value of your home a Realtor (and an appraiser for that matter – more on that in a moment) will look at the most recent comps. So if homes that are similar in size, condition, and location to your home were selling for $50,000 more six months ago yet 3 homes of similar size, condition and location recently (say in the past three months) sold for $50,000 less, the value of your home would be based on the lower amount. The same holds true if the market improves and the comps can support a higher value.

When you overprice your home in an effort to land at a desired price, the following can (and usually does) happen:

  • Many qualified, potential buyers will never even look at your home. If your home is overpriced it will never even show up when a Realtor is searching the MLS within a certain price range for their buyer. Say the market value of your home is $600,000 and you price it at $650,000 hoping that after all negotiations you will end up at $600,000. When a Realtor searches for a buyer that has been pre-approved for up to $600,000, they may search up to $605,000 thus missing your listing all together.
  • Even IF they come across your listing during their MLS search, some buyers will simply not be interested in seeing it because they feel that an offer so far under asking price would be insulting to the seller.
  • Some buyers simply won’t bother with an overpriced listing because they feel that the sellers are “unrealistic” and will remain so throughout the negotiating process.

Let’s talk appraisals! Let’s use the same example as above. You have a home that, according to the most recent comps, is worth $600,000. You list it at $650,000 and are ecstatic to get a full price offer two months later from a buyer that “fell in love” with your home. The buyer needs a mortgage loan in order to purchase your house, and at $650,000 is buying at the top of their price range. They have their down payment but cannot afford to bring any extra money to the closing table. As per the norm in order to secure financing, the buyer orders and pays for an appraisal. The appraisal comes in at market value - $600,000. There is now a $50,000 difference between the home’s appraised value and what the buyers have offered to pay. This would require the buyer’s to either bring the additional $50,000 to the closing table or walk away from the deal by the appraisal objection deadline taking their earnest money with them (unless of course the seller’s were willing to reduce the purchase price to $600,000 – but then, why not list at the correct price to begin with in an effort to attract more buyers?)

Fact: The most interest is generated in your listing the first two weeks it is on the market. This is when you will have the most showings and when you have the greatest chance of securing an offer. Pricing your home correctly right from the start yields you the best opportunity to get it sold.

Having your home sit on the market for a longer period of time costs you time and money. You are carrying the cost of the home (the mortgage, the utilities, etc.) and you are being delayed from moving on.

You are far better off working with a Realtor that is looking out for your best interest and will help you price your home correctly from the start.

Posted by Taydus Taydus on July 1st, 2012 10:19 PM

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