Squander the Early Days
Listings get the most showings in the first 30 days of being on the market. If a home is
priced too high, buyers may choose to ignore it or put it in a “wait and see category.”
The longer the home sits unsold, though, the more negatively it is viewed. Buyers will
think it must be overpriced or there is something wrong with the home. If you wait too
long to do drop the price, most of those “wait and see” buyers will have already moved
on and there will be a smaller pool of buyers interested in your listing as the days on
market increase.
If the home is on the market too long, potential buyers will think they are in a better
negotiating position and you may end receiving a low ball offer, which can be
frustrating. Even if you can negotiate up, it will be for far less than your original asking
price. If you want to attract as many potential buyers as possible, it’s important that the
home be priced correctly from the onset of it going on the market.
Online Search Issues
Nowadays, most buyers go online to begin their home search. Real estate sites with search functionality will allow visitors to input their criteria, including price, and homes that meet the buyer’s specifications will be displayed in the search results. When your home is priced too high, you effectively screen yourself out of these searches. If a buyer looks for homes in the $500,000 – $600,000 range and your home is priced at $610,000, it will not be seen. This means that potentially hundreds of potential buyers may never even know your home is for sale. You may eventually drop the price to within the $500,000 – $600,000 range, but as the days on the market increase, you run into negative perception issues, and the pool of interested buyers will get even smaller.
Having to Chase the Market Down
If you list your home too high to begin with, you may find yourself making incremental price drops, but never quite catching up with the market. For instance, let’s say a seller insists on putting their home on the market for $700,000 even though recently sold comparables indicate that $675,000 is really the true market value of the home. Three months later, after only a smattering of showings, the seller finally decides to drop the price to $675,000. Because markets are dynamic, the number of buyers decreases as time goes on. After 90 days, buyers who may have thought the home was worth $675,000 at the time the home was initially listed, may now think the home should be valued at $655,000 because it has been on the market for so long. If the house still does not sell and the seller further reduces the price to $655,000 two months later, by that time buyers may only be willing to pay $640,000. Thus, the seller may continue to drop the price, but not catch up with buyer’s expectations.
Appraisal Problems
Sometimes, a seller may be lucky enough to get an offer at their optimistic price. It may be that your home is in a very desirable neighborhood or that the buyer agrees that your house is something special. However, you are not out of the woods yet. For your buyer to get a mortgage, they need to have the home appraised. The dollar amount the bank will lend the buyer is based on the appraised value of the house rather than the agreed upon purchase price between the buyer and seller. The appraiser will use the prices of recently sold nearby comparables to help determine the value of your house. If your home does not appraise for the agreed upon sales price, the seller will either need to reduce the price to meet the appraisal value or the buyer will need to come up with additional funds to make up the difference. Buyers are not going to be eager to shell out more money on a property than the appraised value. If the buyer has an appraisal contingency in the contract and the home does not appraise, the buyer can void the deal, and you may end up having to put the home back on the market, incurring additional expenses and adding to the days on market.
Pick the Right Agent
If you ask several agents how much they think you can get for your house, and one gives you a significantly higher
number than the others, be cautious. The agent may
be throwing out a high ball number just to get your business. A good agent will not fill you with false hope. Ask
each agent for a Competitive Market Analysis (CMA). You want to choose the agent who can back up their suggested
listing price with comparable sales data.
As you can see, there are many potential problems if your home is priced higher than what comparable properties
dictate. How to avoid this from occurring…..
Don’t Get Emotionally Involved
You’ve likely spent a lot of time, money, and energy in your home over the years, so it’s natural to be emotionally
invested in its sale. But the biggest mistake sellers can make is to confuse prices or costs with property value.
Buyers may not care about or value particular amenities of a home as much as the seller. Remember, not everyone sees
value in the same things you do. A large property may be of value to some, while to others it represents hours of
maintenance, they are either unwilling or unable to do. Value is in the eye of the various beholders, not yours…..
Market value is determined by how the home is valued in the market, not by one individual. Sellers need to stay
objective during the pricing process by focusing on the prices in the CMA today (not 6 months ago). Many sellers
have become enamoured with the crazy selling prices of the past 1.5 years and are still hoping to obtain those
prices today.
A good way of thinking about it is to take the valuation of the home around 2017-18. Now imagine if someone told you
then, that in 4 years you would make what our CMA just estimated your valuation to be today….. you would have been
thrilled beyond belief. It is almost like you must pretend that past 1.5 years did not occur. It was a one off due
to the unexpected
selling frenzy set off by COVID fears and cheap mortgages.
We live in a very different climate now….interest rates have been hiked, people are scared to buy (thanks to media
hysteria) and COVID is starting to become a bad past memory so the push to get out of the GTA & golden horseshoe has
subsided significantly.
THAT BEING SAID, WE WILL LIST FOR WHAT YOU WANT however…… We want you to fully understand the potential implications and consequences of listing above what the market is dictating today.
We need to be able to work with you effectively over the next 3-4 months without worry that you will finger point and
blame us when the above consequences occur due to an inappropriate listing price being initially set.
We simply ask that you initial this document stating that you have read it. That way, in 3 months if the home is
still sitting on the market, we will be able to remind you that we explained the potential consequences of an above
CMA listing price, and you accepted those consequences against our best advice.