Though there are specific ways to price your home for sale appropriately, home sellers sometimes ignore those methods. Not surprisingly, it’s usually a higher price. Sometimes it’s much higher. Though that might seem like the right thing to do, much can go wrong if you overprice your home for sale.
The Reasons Sellers Overprice Their Homes for Sale
There are four reasons why sellers may overprice their homes for sale:
The need to get a certain sale price. Let’s say that you are buying a new home for $500,000. To make a 20% down payment, you’ll need $100,000. If the mortgage on your current home is $250,000, you’ll need to sell the house for at least $350,000, plus enough to cover closing costs and a real estate commission. You price the house at $380,000, even though the real estate agent tells you that it’s best sale point is $330,000.
Basing the price on the highest sales in the neighborhood. In a typical neighborhood, sale prices will vary from lowest to highest. In a neighborhood with an average sale price of $250,000, the lowest sale may have gone for $220,000, and the highest for $280,000. You naturally think that your house is worth at least as much as the highest priced one in the neighborhood. Even though your home is an inferior property, you list it at $289,900. It may be overpriced by as much as $40,000.
An exaggerated sense of value. This is where emotion overrules facts. You might assign a sale price that you think the home is worth. The actual value isn’t given much consideration. This is a natural outcome since the family home has a strong emotional component.
“Let’s see what happens.” This is where home sellers “take a flyer.” The real estate agent tells you that your home is worth $300,000, but you put it up at $349,900 – just to see if anyone will bite. You know your home isn’t worth that much, but you’re hoping to get a little extra.
Now let’s take a look at what can go wrong if you overprice your home for sale…
The House May Sell, But Under-appraise
This happened to our neighbors this past spring, and it isn’t uncommon. They set the price of their home a full $35,000 higher than the prevailing market value – which was quite well-established at the lower level. Ironically, they received a full price offer and another that was even higher.
A happy outcome? Nope.
About a week before the scheduled closing, the appraisal came back. It didn’t support the agreed-upon sale price. They were forced to renegotiate the sale price, down to a number that is much closer than the actual market value (though still a bit higher).
They ended up walking away from the closing table with a lot less cash and were forced to do a minimum down payment on their next purchase. That wasn’t the outcome they’d planned for.
No matter what you set the sale price of your property at, the mortgage lender will rely on a property appraisal to determine the actual value for lending purposes. Never forget this when you’re pricing your home for sale.
The House May Sit…Unsold
If your house is priced substantially above its true market value, it may sit unsold for months. While other homes, more reasonably priced, are selling quickly, an overpriced property may languish on the market.
If you have submitted a contract on another home, this could interfere with your plans. This will be especially true if the purchase of your next home is contingent on the sale of your current property.
One of the inherent problems with a property sitting on the market for more than a few months is that it can come to be seen as a problem property. Both prospective homebuyers and real estate agents may pass it up, assuming there’s a problem with either the property itself, the owners, or even the value.
You certainly don’t want to underprice your property for quick sale. But overpricing it could lead to serious consequences.
You May End Up Selling Your Home for Less than the Actual Value
This is an extension of the last situation. After your home has been sitting on the market for three or four months, you may be forced to lower the price. But because the home has been listed for so long, it may not sell even at the lower price. You wait another 30 days, then lower it again.
After the home has been sitting on the market for approaching one year, and you have successively cut the price, the price might fall below what would have been a reasonable market value when it was first listed.
Let’s say that your home is worth $300,000, but you listed at $350,000. 10 months – and four price cuts – later, you drop the price to $289,900. Because the home has been sitting on the market so long, you’ve been forced to drop it below market value just to get people to look at it.
This is an excellent example of how overpricing your home could end up getting you less than it’s worth.
How to Price Your Home Right
The best way to price your home right is to trust the professionals, who work in the real estate market every day. If you’re listing your home with a real estate agent, rely on that agent’s written estimate of value. If you are selling the home yourself, have the home appraised.
You may be able to rely on online sources, such as Realtor.com and Zillow.com, but those provide ballpark estimates at best. They won’t adjust for specific features, or for the maintenance level of your home. You may want to get an opinion of value from an appraiser or real estate agent to back up those numbers.
Just be sure to price your home right from the very beginning. The right price will bring a quick sale, with the highest cash coming back at the closing table.