Some homeowners are of the (mistaken) belief that they should price their home a tad above what it’s worth – say, $340k for a home worth $300k – so that there’s “room for negotiation.”
Pricing your home above its value actually decreases its value, and here’s why:
- Timing is everything. The greatest potential for buyer traffic is the first 30 days. This is an actual graph for the number of showings that a listing of ours recently had in its time on the market. Internet activity follows an identical pattern. The only time the number of showings will actually increase is when the price drops – but that bump is never as high as the number of showings in that critical first week.
- Showings shut out. Buyers’ agents have an ethical obligation to do what is best for their clients. Showing them overpriced listings does not meet that criteria. Agents will always choose to show properties that are within their buyer’s price range and that are priced appropriately.
- Benefits the competition. Imagine that you’re in a grocery store. Two identical loaves of bread are sitting next to each other on the shelf – one is priced $5 and the other is priced $4. If there is no additional value to the higher priced bread, the lower priced bread is more likely to get purchased. The same is true of your home. When a home is overpriced, it not only sits on the market but also acts as a selling point for correctly priced homes. It’s a cue for buyers to say “I can get the same house for less!”
- Lender trouble. Even if there is a buyer willing to pay $340k for your $300k house, these buyers will not be able to get a mortgage. Today’s lenders are extraordinarily cautious and base their loans on accurate appraisals.
- Time on market. Overpriced homes will sit on the market. Extended time on the market makes buyers think that there are problems with the house and are loathe to even see the house.
- Lower proceeds. When a home is listed above its value, it almost always sells for less than its value. Simply put, buyers presume that the seller is getting desperate to sell and therefore make a low offer.