I am forever frustrated and dumb founded by the fact that the practice of over pricing continues without any realization for what the downside is to the Seller and to the overall selling process. Many of my colleagues dismiss it by saying “there is an ass for every seat”. I wonder what they mean by ‘ass’, but then again what was the expression we attribute to PT Barnum about suckers? Here are 5 reasons why over pricing is not a good idea for Sellers, and in turn may mean a lost opportunity for Buyers.
1. Fewer Offers or No Offers – An overpriced home discourages prospective Buyers from making Offers, if the difference between the asking price and today’s market value is substantial. Many Buyers won’t waste their time on a property they believe is overpriced, and may even think they would be engaging in a hostile negotiation that would insult the Seller and never go anywhere.
2. Lost Inquiries means Lost Showings – Buyers shop within price ranges and over-pricing a property may put the property out of line or out of range with its competition. In a perfect world Buyer Agents should concentrate showings based on the stated price-range preferences of the buyers; however, knowing that properties are overpriced a buyer agent will offer properties that are above the buyer’s stated price range. Without an explanation the buyer may infer that their agent is trying to upsell them. This is why, when I present properties that I am familiar with – which is most properties on Martha’s Vineyard, and have analyzed, I tell my Buyer Clients not to pay too much attention to the ‘asking price’. If we make an Offer it will be a carefully considered Offer, presented with the proper respect and intent. If the Seller is insulted, that is their problem. Also, many Buyer Agents, if they don’t have a good sense of values in their market may not look at some properties that could ultimately fit into the price range their Buyer is able to afford.
3. A Low Appraisal versus the Sale Price – When a Buyer requires financing in order to purchase a home, the lender will require an appraisal for that property. If the Buyer has agreed to pay more than market value, and they may not realize that they have, the property may not appraise, which would mean that the Buyer will have to put more money into the down payment or the sale will be in jeopardy of not going to Close.
4. Over Pricing May Help Sell the Competition – This is an old truism in real estate. When a Seller Agent takes an overpriced property, and there is competition in the area, the overpriced property will help sell the competition. The problem is not always created by the Seller Agent’s opinion of value as many Sellers, reflecting the endowment effect, will insist their property is better than the competition and will control the (over) pricing. Sellers need to listen to their Seller Agents, they are the professionals!
5. Overpricing Can Mean the Seller Loses in the End – “Chasing the Market” can be the kiss of death for a Seller in terms of final proceeds. Overpricing inevitably ends up in having to reduce the price to keep up with the market and once that price slide begins, unless it is a bold cut in price, the market will tend to sit back and see how low the price will go. When Sellers price their property correctly so it is clearly the most attractive property within its price range, they end up with less expense in carrying costs, wear and tear, and usually more money in their pocket. Life is short and time is money, so the best price is the right price, not the over price.