Is Overpricing Your Home a Good Strategy? Things to Consider and Mistakes You Might Make

One might assume in these days of inadequate inventory and eager home buyers, that over-pricing your home would be a fast route to a little extra income. After all, fewer homes on the market means more competition for every listing, right? There are several reasons why the overpricing strategy will likely backfire.

The first, and most compelling argument would be the appraisal. Unless your potential buyers are coming in with cash, there will be a lender to contend with and consequently an appraisal. Appraisers are not inclined to consider what a home seller thinks the future market will support, but what has already taken place within a limited area neighboring the subject property.

Secondly, today’s home buyers are sharp. Gone are the days of the uninformed buyer. Their agents have access to market information instantly and can pass on the details of a recent home sale in a matter of seconds. Did the property two doors down close during a showing at your house? Your potential buyer’s Realtor will know.

Timing is more important than you might think. Your home may be exceptionally outfitted, landscaped or updated but if you can’t get buyers inside, they’ll never know. The showing appointment is your number one goal as a home seller. Buyers commonly begin their search with dozens of listings to view so it isn’t unusual for them to dismiss out of hand, the ones they feel might be overpriced.

By overpricing your property, you could be decreasing your own home’s equity. The longer a listing remains on the market, the more both Realtors and home buyers are convinced that it’s either overpriced or there’s something wrong with it. Furthermore, by remaining on the market longer than the local average, you are at greater risk of the market changing, which in my experience can happen in an instant and without notice.

There is a definite strategy to pricing your home and some mistakes to avoid. It is most definitely possible for you to make the most of your Real Estate investment.

Pricing a Home Accurately: Mistakes to Avoid

By Bill Gassett

Do real estate agents make mistakes when pricing a home. Of course. This is why it’s so important to go with an experienced agent and one you can trust at the same time.

Sometimes an agent will make a pricing mistake for no fault of their own. You’d be surprised by how many sellers try hard not to disclose all of the information about a property. An exceptional listing agent needs to be a detective, as well as a salesperson.

Finding out what’s wrong with the property is just as important as learning about its top selling points. Here are the most common mistakes to avoid if you want to price a home accurately:

Should You Price a Property Using Price-per-Square Foot?
Using price-per-square foot to value a home is one of the oldest means of pricing. It’s also one of the least accurate for many reasons. A significant amount of uneducated agents will use this method of valuation.

It sounds great, but it may not accurately reflect the true value of the property. For instance, another home in the same neighborhood could be in worse condition. It could require a lot of work and have other problems which need to be addressed. In that case, the price-per-square foot valuation is not a true reflection of the subject property’s value. It’s often worth paying a bit more for a property that’s in better condition.

Another example is trying to compare a home in a far superior location. People pay a premium when they’re located in the best area in town.

Does the Neighborhood Matter?
Most buyers are happy paying a bit more for a property in the exact part of town they’d like to move to. Sure, take a look at what properties are selling for in other neighborhoods, but if the property comes up where they want, they’ll usually pay for it. So you could have two identically-sized homes and one may be worth more than the other if located in a premium neighborhood.

School districts are another reason why you can’t just use price-per-square foot. The schools in a particular part of town may not be as good, or it could be further from work. Buyers are willing to pay more money for the same house in the top school districts.

The Seller Determining the Price
Should a real estate agent let a homeowner price the property? This is where the worst pricing mistakes happen. Most homeowners who try to sell on their own, or talk the listing agent into selling for a certain price, can wait a long time for a sale.

These properties are often overvalued and you should be aware of this problem. If you think that the price seems excessive, ask the agent who set the price of the property. If the owner is selling their home without a real estate agent, there’s a decent chance they set the price. The vast majority of the time, For Sale By Owner properties have an unrealistic asking price. This is one of the reasons why so many of them end up listing with an agent.

The Agent Didn’t Want to Lose a Listing Opportunity
Real estate is one of the most competitive industries around. Agents often compete with other agents to land business. Human emotions can come into play when a seller has to pick who they want representing them.

Unfortunately, instead of picking the best agent based on skills or merit, other factors are considered. If one agent comes in with a higher price, they may be picked for that reason alone. And lesser-skilled agents use this to their advantage—they’ll intentionally mislead the seller on price to get a listing.

Using the Tax Assessment to Set a Price
This isn’t a good idea. Most agents are aware of the value of the tax assessment, but seldom base their value of the property on it. There are some agents who don’t know that there’s no correlation between assessed value and fair market value—many things may have changed since the property was last assessed by the tax collector.

Assessed values can be much higher or much lower than the actual market value. Never make the mistake of using an assessed value to put a price tag on a home.

Basing the Price on an Online Estimate
Don’t try to guesstimate a property value. There are many online valuation sites that publish valuations. Take these estimates with a grain of salt. More often than not, these are way off from the true market value. Always make sure that a property value is backed up by facts. An outstanding real estate agent should be able to tell you what a home is worth and back it up with facts as to why that is the case.

Don’t be afraid to ask. Many buyers are still worried about asking why a home is worth a certain price. A professional buyer’s agent will tell you why they think the home you are considering buying is worth X amount compared to others.

Key Factors to Check Out
In order to ensure no pricing mistakes have been made, here are a few things you should check out:

Is the plumbing up to date?
Does the homeowner have all of the necessary building permits for any remodeling done?
Are bathrooms and the kitchen up to date?
Are all home improvements and alterations legal?
How desirable is the lot?
How much traffic goes by the house?
What is the rating on the local school system?

It’s easy to forget that it is your money. Many of us still “fall in love” with a property and find we “just have to have it.” Some say that you buy dreams when you buy a property. That is very true. When you go on a home visit, take off your rose-colored glasses and make sure you are comparing apples to apples.

The market value of a home is always determined by the buyer. If you don’t have a buyer, then you don’t know what your property is worth. Agents and sellers can surmise all day about what they expect a home to sell for—sometimes it happens as planned and other times it doesn’t.

Of course, any real estate professional does their best to accurately price a property. Some are better at it than others. Given it’s such an important variable in selling a home, make sure you do your due diligence.

Homes that are priced correctly out of the gate sell for more than those that get price reductions. Always remember that when you are trying to stretch beyond what the data tells you. By following sound advice, you’ll avoid all the common pricing mistakes that get sellers into hot water.

This was first published on RISMedia’s Housecall. Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell Metrowest Massachusetts real estate for the past 32-plus years. Reprinted with permission from RISMedia. ©2019. All rights reserved.