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Overpricing Can Be Expensive Overpricing Can Be Expensive
Dangers of Overpricing -- Why Sellers Overprice
Overpricing is common. Sellers are always tempted to market their property at a
price above its market value.
The logic sellers use isn't complicated:
- They love their home so much that they have an unrealistic personal estimate of its market value.
- They have calculated their financial need and decided to price their home accordingly.
- The Realtor or Appraiser admitted that it was hard to find good comparables, so why not pick a high price and
hope for a month or two.
- They interviewed a handful of Realtors and picked the one that said he/she would list it at the highest price.
- They've heard about people overpaying,
so they want to test a higher price at first to see if they’ll be lucky enough to find a buyer willing to overpay.
Experience shows that the "overpricing strategy" very rarely pays off and is much more likely to cost the seller
time, effort and money. If the only negative to overpricing was a delayed sale,
it wouldn't be such a bad idea. However, the costs can be quite significant to the seller.
Time is valuable
Overpriced homes take longer to sell -- if they sell at all without a significant price reduction.
So, unless you are able to buy before you sell,
your time and expense looking for your next home can be wasted. When that perfect home you want to buy
is purchased by someone else, the cost of having your own home not sell is very high indeed.
Buy before you sell and the cost
of paying two mortgages and maintaining two properties reduces the advantage of a higher selling
price very fast. After a couple of months paying two mortgages, paying two sets of utility bills
and maintaining two lawns, most sellers see the light and lower the price to be more competitive.
No amount of advertising will sell an overpriced property
Most activity on a listing comes within the first 30 to 60 days.
While properties that are priced correctly may stay
on the market for longer than 60 days, they are attracting buyers in the correct price range.
Buyers in the correct price range come back later, when they realize there is no better value available, and make offers.
An initially high price attracts buyers in the higher price range and
since similarly priced houses offer a better value, the others sell and
yours stays on the market.
Overpriced properties may be shown, but buyers don't make offers
A property that has been shown many times without receiving any offers is likely to be
overpriced. Lets assume your home is competitively priced at $185,000, but you decide to ask $199,900.
Retail buyers compare your $199,900 home to all the other $199,900 homes and
make an offer on the best one. Realtors and buyers have access to more and better information about property values than ever before.
Overpriced properties help to sell the other, better properties at the same price point.
Wasted effort, time and expense keeping your home ready for showings
Effective marketing can produce showings, but no marketing effort can force a buyer to make an offer.
In addition to your wasted expense and efforts, your Realtor has wasted advertising effort, time and expense attracting the wrong buyers.
The marketing effort almost always starts over every time the price is lowered.
Later price reductions are not equal to correct initial pricing
Even after lowering the price after sixty or more days to be more competitive, some buyers (and their agents) will not want to see your home
because your listing is starting to get stale. When a property has been on the market for several months buyers fear
that there are some hidden defects or
unpopular features. By not pricing it competitively from day one, you
have reduced your potential buyer pool. And, because your property has been on the market for a while,
buyers that make an offer are more likely to ask for significant concessions. Buyer agents and buyers are always looking
for anxious sellers.
You risk lender rejection for your buyer
Let's suppose that a buyer offers to buy your property at a price acceptable to you, but higher than
its likely appraisal value. Unless that buyer is
making a substantial downpayment, you risk lender rejection for your buyer. When buyers fall in love with
a home, they may willingly pay too much, but lenders do everything that they can to avoid overpaying.
Contracts do get voided because the property does not appraise for a value that supports the selling price.
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