Overpricing is a dangerous practice.
When a property is overpriced, it languishes on the market. The first two weeks of a listing are crucial because they offer the best chance for the property to sell. If this window of opportunity is missed, in effect, the property has missed its market.
At any given time, there is a group of buyers waiting to buy at a given price. These buyers will make their purchasing decision, on average, in a few weeks. If a property is overpriced from the beginning, this group of buyers will overlook higher priced homes and move on to homes in their price range. By the time the price is adjusted to the correct price, only new buyers entering the market will find the property, therefore reducing the number of potential buyers and increasing the number of days on the market.
This reduces the chances that the property will sell fast and at its optimum price.
Risks of Pricing a Property Too High
As we just discussed, pricing a property too high can result in several problems. Keep the following key points in mind:
- Overpricing a property sets the wrong expectations for sellers.
- Interest in a property decreases the longer it is on the market.
- Pricing the property 10% or higher above market value exponentially decreases the number of buyers who will be interested in a property.
- The price might not match the appraisal. If that happens, the seller may have to lower the price, ask the buyer to make up the difference, or lose out on the deal.
Properties that languish on the market grow stale.
When a property is listed on the market for too long, buyers and their agent begin to wonder what is wrong with the property. Speculators smell desperation and begin making lowball offers.
We have found that overpricing by even a few thousand dollars can cost a seller many thousands in the end. When thinking about pricing a home, the attitude of “Well, let’s try it and see if we can get it” often backfires for these reasons.
Is it possible to underprice a home?
In short, it is not possible to underprice a home. The reason is that underpriced homes get more showings and more offers that result in the highest possible price. When a home is priced lower than market value, it typically receives multiple offers.
When a home receives multiple offers, a knowledgeable and experienced agent will be able to leverage the offers to create a bidding war where prospective buyers compete to buy your home. There are two psychological factors that help homes sell for more when there are multiple offers.
- Each buyer now feels like the home is worth more because they see others want the home.
- The buyers are now more committed to purchasing the home because they have spent time and effort putting together their best offer.
Benefits of Proper Pricing
There are many benefits to pricing a property right from the start. Consider the following:
- Pricing a property correctly can result in a faster transaction time. A property will see the most interest within two weeks of being on the market.
- More showings equal more potential buyers. Interest in the property can be an indicator of a well-placed price point.
- Proper pricing maximizes seller benefits. Properties priced at market value get the attention of 60% of the market. The lower the price under market value the greater the exposure.
- Properly priced homes tend to sell faster, get more offers, and sell for the highest price.
- The price is more likely to match the appraisal.
Easy Pricing Test
Here are some simple ways to tell if a property is at the correct price point:
- No showings + no offers = property is not at the right price point.
- Lots of showings + no offers = need to check property’s price point.
- No showings + lots of offers = need to check property’s price point.
- Lots of showings + offers = property is at the correct price point.
Price is not always the problem, but price is always the solution!