4 Reasons Why Overpricing Your House Could End Up Costing You
Don’t let this whole “Seller’s Market” thing go to your head. Yes, those looking to sell their home certainly have the upper hand in today’s housing market, especially in the $150,000 to $250,000 price range in southeast Michigan. With an improving economy, those who had been sitting on the sidelines during the recession are now in the market to buy and newly constructed homes are typically outside of this price range. Also, mortgage interest rates are still historically low. It’s simple economics: When demand outpacing supply, prices go up. However, before you tell your agent “Let’s just list it at this amount and see what happens”, check out the 4 likely outcomes from overpricing your home. Spoiler alert: It’s not pretty.
1. The Right Buyers Won’t Come to See It
Sure, buyers will still come view your home, but you probably won’t get the best feedback. By the time the average buyer in today’s market makes it to your home, they’ve already seen tons of houses online and visited other homes with their Realtor®. If they come to your home and it’s not at least on par with the other similarly priced homes they’ve already seen, yours will seem like the worst in the bunch and leave buyers with a negative impression. No buyer is going to submit an offer on your home if they’ve already seen that their money can get them more elsewhere.
2. Buyers Will Struggle to Get a Mortgage Approved
Unless the buyer is paying cash, overpricing your house is going to create a problem for anyone attempting to get a mortgage to purchase it. As part of the mortgage approval process, lenders have an independent appraiser estimate the market value of your home, primarily based on the recent sale prices of comparable homes in the neighborhood. As a former appraiser, I can tell you this process historically tends to set the lower limit of value within an improving market and the higher limit of value within a declining market.
Overpricing your home won’t necessarily kill the deal, but if it turns out that the appraised value is less than the sale price, the buyer will have to pay more cash at the closing table to make up the difference. Furthermore, once the buyer finds out the property isn’t worth the amount they’re paying, they’ll likely want to renegotiate the sale price anyway. After you’ve listed your home, showed it to several different buyers, accepted an offer, and are packing up to move, the last thing you want to hear is “The house didn’t appraise”. If you’re buyer isn’t willing or able to pay the extra cash to make up the difference, you’ll have to restart the purchase process over with a new buyer.
3. The “What’s Wrong With It” Stigma
Getting picked last sucks. Today, competitively priced homes are selling quickly and if yours is just sitting on the market, buyers will likely begin to wonder “What’s wrong with it?” That opens up a whole ‘nother can of worms, which often includes greater scrutiny during inspections, lower offers, and more concessions.
4. The Price-Dropper Pitfall
Well here we are… your property has been listed on the market for six months and you’ve dropped the price four times. What do you think that says to potential buyers? It appears you’re growing more anxious to sell and the price is highly negotiable. Like a poker player, it’s in the seller’s best interest to avoid any signs of desperation. Once it’s known that you’re willing to accept less than the price you initially asked for, buyers will feel that have more room to negotiate.
The following chart indicates that most of the activity and attention your home will receive after being listed For Sale takes place in the first three weeks. This further underlines of necessity of making the best first impression possible. Buyers are far more likely to submit lower offers if the property has been sitting for a while.
Given the high demand in today’s market, a more effective strategy would be to list your home at a competitive price that attracts multiple offers and generate a bidding war that will ultimately drive up the final sale price.
It’s great to review comparable properties your Realtor® may show you, but don’t rely solely on what you’re given. Do your own research! You can search through homes for sale in your neighborhood and see what prices other sellers are asking using the following link:
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