Ignoring the emotions related to home ownership can lead to bad financial decisions with decade-long effects. When it comes time to sell, homeowners often overestimate the value of their homes for a wide variety of emotional reasons. And probably the most important decision that’s made when selling a home is setting the asking price. Priced too low, the homeowner will leave money on the table and watch their investment slip away. If priced too high, it will drive potential buyers away.
It’s hard not to invest a lot of emotion in a home though. If a homeowner has lived in the same home for any extended length of time, the home becomes more than just a place to live. It’s where a couple spent their first Christmas together. It’s the home they brought their first child to, its first night out of the hospital. It’s countless birthdays, anniversaries, and holidays. It’s the refuge from all the day to day stress of a busy life. Trying to place a price on something with such an enormous emotional investment is no easy task.
Many homeowners want to set their list price based on what they paid for their home, the balance of their mortgage, or on the profit, they want to make so they can move into another home. But in reality, a home is worth only what the market will bear. If you price your home too high, some potential buyers won’t want to look at it at all, while others will look and simply walk away without making an offer.
Since a primary goal of selling a house is to get as much money as possible, it’s tempting to overprice. There’s always a chance of scoring big. Right?
Technically, yes. But that doesn’t mean testing the market by setting a home’s asking price above a house’s likely sales price is a good strategy. Here are just some of the reasons that it is a bad idea to test the market this way.
- It is likely that an overpriced house will only make your neighbor’s house more attractive. You won’t get offers but your neighbors might. That’s carrying being a good neighbor a bit far.
When a house is priced too high, it helps sell the other realistically priced homes in the neighborhood. Even if buyers like the higher priced listing more, the realistically priced competition will seem like a better value.
- Overpriced sellers aren’t taken seriously and they lose credibility. Buyers have usually done the research and have a ballpark idea of what a home in a neighborhood is worth. If a listing is priced too high, buyers won’t consider it or even look at it.
- Not everyone likes to negotiate. Many sellers like to leave room for negotiation. If priced too high, some buyers might overlook a listing because it’s priced out of their budget. In that case, there won’t be anyone to negotiate with. While some buyers like to negotiate, serious buyers respect and appreciate a properly priced property.
While it is important to leave some room for negotiation, it is equally important not to overreach. No seller wants to feel he left money on the table, and no buyer wants to overpay. A price should give both parties room to maneuver, but if it is too high, a seller risks being perceived as unrealistic, and a buyer won’t even make an offer.
- Sellers have the most leverage during the first 30 days a house is on the market. The listing is new, so the home has the market’s attention. When a home is priced too high, the listing’s early days are squandered. The most lucrative early days when the seller has the most leverage is wasted.
- When a house is on the market for more than 30 days, it gets stale. Buyers will start wondering whether something’s wrong with it. Real estate professionals refer to this as a stale home. Savvy buyers know the market and they’ll wait for a seller with an overpriced listing to lower the price. Real estate sales executives often see low offers on a house after a price drop. There is a direct correlation between the length of time a house sits on the market, the larger the discount of offers, and the ultimate sales price.
First impressions are everything when selling your home. Studies have shown that the first few weeks on the market are the most crucial to success. During these initial days, a home will be exposed to all active buyers. If a price is perceived as too high, the home quickly loses its initial audience. Markets are dynamic and a price has an expiration date. There is only one chance to grab attention.
- And finally, perhaps the most important reason to list at a realistic price is because the house won’t appraise at the higher price. Even if there is a buyer that falls in love with a home, that buyer will most likely need a mortgage and lenders will not make a real estate loan without an appraisal. If comparable home sales over the last six months and current market conditions don’t support a sales price, a buyer won’t get the mortgage.
After interviewing several real estate brokers to choose a listing agent, it may be a temptation to pick the sales professional who suggests the highest price for the property. This may not be the best strategy. Sellers as well as buyers, need to beware. The real estate agent who provides the best comparative market analysis and the best explanation of how your home should be priced will most likely sell the home quicker and for a higher price than someone who tells a seller only what they want to hear.
“Some agents give sellers false hope because they’re uncomfortable telling their clients the truth.” According to Jeremy Jenks, Vice President of Sales at the Trembley Group Real Estate in Myrtle Beach, SC. “Other agents are what some in the industry call ‘sign agents.’ These agents will agree to any listing price to get the free advertising of their sign on your lawn figuring their frustration will eventually move them to lower the price. Other agents like having the prestige of their name associated with a high-priced listing.”
“Sometimes a real estate professional’s most difficult job is getting a seller to come to realistic expectations of a home’s likely selling price.” Jenks continues. “I do an extensive comparative market analysis that includes sales prices for all the similar nearby homes sold in the last several months. After adjusting for differences, I determine a price per square foot.”
“I also analyze the prices of the competition – homes currently on the market – as well as the homes that have been taken off the market because they didn’t sell.” Jenks says. “Other data I use to suggest a price range per square foot include how many days homes were on the market at various price points and the average difference between the list prices and sale prices on homes that have sold.”
Jenks explained it is important to not confuse active listings with past sales. Active listings have not sold. They are just the competition. It is important to be aware of the competition’s pricing, but this is often just an indication of what a home will not sell for. The current market price may have little to do with how much a person will actually pay for a property.
A good real estate sales executive can also help estimate who might want to buy a house and what else those buyers are looking at so a price can be measured against the competition. If a seller is set on a higher price, a professional broker can recommend improvements that will add the most value.
A knowledgeable real estate professional will factor all of these property-specific issues in the context of general local market conditions. A professional broker will consider whether area home prices are rising or falling and whether it’s a buyer’s or seller’s market.
The right real estate professional will give expert advice and will guide a real estate transaction from listing to closing, quickly and smoothly.
With services like Redfin, Zillow, and Trulia and basic access to the local MLS information, it may seem like the dynamics of how a how a home is bought or sold has dramatically changed. It hasn’t. The value of a professional real estate broker should far exceed the brokerage fee paid. If a seller doesn’t receive value, they should find a new broker.
If you’re ready to begin the complicated process of selling your home or would just like to sit down and discuss the process with a professional, give Jeremy Jenks, Vice President of Sales at The Trembley Group Real Estate a call at (843) 638-3002 and start a process that is sure to be one of the most exciting and probably one the most lucrative of a lifetime.
Need help? Call The Trembley Group at 843.945.1880 ext. 100 and we’ll help you look for the perfect listing or buyers agent!
At The Trembley Group, we pride ourselves on being the experts at more than just selling real estate. We are local residents, some of us have been here for a lifetime. The rest of us will be here until the end of time. We love living, working, and playing in the diverse backyard of Coastal Carolina, and look forward to helping you live and love your dreams soon too. Please reach out to us by phone or email for personalized service and one-on-one advice.