Overpricing is setting a list price way above market value. At first thought, you’d probably think overpricing isn’t such a bad thing. I mean, someone will make us an offer, right? Here we’ll talk about the effects of overpricing and what it could mean to you in terms of time and money.
The first biggest mistake a seller makes is thinking they’ll start at a number they’d love to get and if no one bites, reduce their price. We hear things like…
“We can try it at our price and always reduce the price later.”
The short of it is price reductions…
- Work Against Sellers
- Hurt a Seller’s Bargaining Position
- Buyer Assumes Weakness
- Buyers Will offer Less
Let’s dig a little deeper.
Pricing High with Planned Price Reductions Hurts the Seller
When you start at an inflated price, several things can happen – and all of them work against the seller.
Dangers of Overpricing
- You’ll have fewer showings
- You’ll receiving few – or no – offers
- Your home will help sell other homes
- Your home will attract the wrong prospects
- Your home will stay on the market longer
- You’ll lose the best buyers
Say you set your price at $550,000 when you know its market value is really around $500,000. Buyers who are looking for a $500,000 house will rule it out because its priced too high. Buyers looking for a $550,000 house may come by, but, once they see your home does not compare to the other $550,000 homes they’ve seen, they’ll rule it out and find something else.
All the while, you’ll be left frustrated with the little activity you’re getting and missing out on a prime marketing window.
Prime Activity Window
Set the Right Price During the Prime Activity Window
The first 12 days a property is listed for sale is known as the prime activity window. On Day 1, serious buyers will know as soon as it is listed. Because not everyone can get out to see your home the exact day its listed, you’ll see activity increase as more buyers become aware of your home until Day 12 where interest peaks.
After Day 12, Interest Drops Off
As you see in the graph, activity (buyer’s interest) slowly decreases and plateaus around Day 27. Reducing the price and/or offering more enticing terms will give you small blips of increased activity, but interest will never be greater than it was on Day 12.
New Listings Create a Buzz in the Marketplace
There is a buzz that’s created when a new listing comes on the market. Buyers who’ve been looking, get excited to have another option. But, once they’ve seen it, that’s it. Your home is just one of those homes they see every time they log into their home searches. They’ve already been inside, ruled it out and moved onto new properties that offer a better value.
Another common objection from sellers is…
“New buyers are always looking”
This is true. New buyers are always coming into the market, especially in Austin where we have such a tremendous influx of people relocating from other areas of the country. But, if your home wasn’t priced competitively when the most number of buyers were looking, what makes you think there will be this one buyer who will sweep in and magically offer you more than your home is worth? Could it happen? Yes. Could you find a needle in a haystack? Yes. Would you build your home selling strategy around finding a needle in a haystack?
Other times we hear…
“They can always just make us an offer”
Logically, this statement is 100% correct. However, buyers are unlikely to make offers when the home is way overpriced for a variety of reasons.
The first being an unwillingness to negotiate. As a society, we are trained when you go to the store you pay what’s on the price tag. If you don’t like the price today, come back when its on sale.
The second is buyers don’t want to insult the owner by offering them much less than their list price. So, even though they may really like your home, they’re not willing to even attempt to make an offer.
Some sellers are afraid of leaving money on the table…
“If we price it too low, we’ll lose out on extra money”
I would argue just the opposite – if you price your home too high, you’ll lose out on extra money. Why? Glad you asked.
We know this … buyers are looking for value and they are comparison shopping. The National Association of Realtors (NAR), who compiles data on buyers and sellers, says
“Buyers look at an average of 15 homes before they decide to buy one.”
-2009 NAR Study of Buyers and Sellers
This means your home is competing with 14 other homes on the market. If your home does not stand out as being the best value, a buyer is simply going to buy the one that is.
What Happens When Your Home is the Best Value?
If your home is clearly the best value, likely it will be at the top of more than one person’s list, thus creating potential for more than one offer. When more than one buyer is interested in your home and they know there are other buyers out there, many times they’re willing to pay full price or more. The beauty for you is these buyers don’t know what other buyers are going to offer so they put their best offer in. See where I’m going with this?
Not Pricing Competitively will Create a 0% Chance of a Bidding War
Can we guarantee if you price your home competitively that you will create a bidding war? No. But, we can guarantee that if you don’t price your home competitively you will have a 0% chance of creating a bidding war.
Worst case scenario? Your home gets sold quickly and you can move on to the fun part, looking for your new home. Not such a bad outcome when you consider the alternative.
Homes that are Overpriced are Seen as Inferior
When you price your home too high, buyers assume weakness and even when you get the price down to a level that is acceptable to a buyer, they will always try to get more dollars on their side of the table. When a home is reduced, buyers assume there is something wrong with it, or that it is still overpriced. Either way, you’ll get offers for less money than if you would’ve set a market appropriate price at the beginning.
Are the Risks of Overpricing Worth it to You?
Now you know the facts and stats about the effects of overpricing. Are the risks worth it to you?