 One of the
first and most well-known real estate mantras any real estate agent will tell a
seller is this: “If you overprice your home, it will take longer to sell and
sell for less money.”
Yet,
sellers continue this self-defeating practice, hoping their personal needs will
help their home defy market physics.Why
do they do it? Lots of reasons:
-
they
feel entitled to make a profit
-
they
don’t want to bring money to closing
-
they
feel their home is superior to others
-
they
want return on improvements and repairs
-
they
want to buy another home
-
they
want to pay off credit card debts
-
they
want to pay for college, retirement or other goals unrelated to buying another
home
-
they
want to allow room for negotiations
Did you
notice that not a single one of those reasons has anything to do with the
current market value of the home?
According
to a new report from real estate community Zillow.com, when sellers purchased a home has a lot to do with how much they tend to overprice their
homes for resale. Sellers who purchased before 2002 tend to overprice by 11.6%
and those that purchased between 2002 and 2006 overpriced their homes by 9.3%
over Zillow’s Home Value Index of market value.
When
Zillow surveyed sellers who plan to sell their homes in the next four years,
most said they planned to base their asking price on their original purchase
price, with 17% saying the purchase price would be the primary factor in their
decision – despite the fact that home values nationwide have fallen nearly 30%
since 2006.
Stan
Humphries, Zillow's chief economist, says that sellers who purchased in 2008 or
later feel they escaped the worst of the market, and aren’t taking into account
that home values fell 12 percent between January 2009 and May 2011.
Sellers
need to study their local markets since they purchased before pricing their
homes for sale.
In a
buyer’s market, overpricing tends to make properties stagnate. For one thing,
agents and buyers will use an overpriced home as an unfavorable comparable.
Even worse, the right buyer might not know about the home at all if they and
their agents use price perimeters to search for a home.
That means
a typical search between $175,000 and $200,000 won’t include a home priced at
$205,000.
Explains MLS expert
Gregg Larson, “The search price increments vary depending on scale – people use
$10,000 increments for $100,000 homes but $100,000 increments for
million-dollar homes.Pricing just over
a logical range end point like at $255,000 or $505,000 will exclude that home
from some search results.”
“Agents
typically recommend sellers to price their home just under break points for
that very reason,” says Walt Molony, spokesperson for the National Association
of REALTORS®.
Adds Larson,
“Certainly some agents intentionally search higher than the “round” end points
to try to find those “extra” homes, knowing their buyer will offer less
anyway.”
Setting a
high price with wiggle room to reduce the price later is not a successful
strategy, according to Trulia’s Home Offer Report, released in April 2011.
“During the past year, U.S. home sellers slashed
more than $24 billion in potential wealth from home listings on Trulia.com,”
says the report. “On average, most sellers will reduce their list price after
79 days on the market, choosing to cut their original list price by 8 percent.
Following a first reduction, 35 percent of these sellers will make a second.”
That’s 2.6 months on the market without a contract, which may cause
some buyers to wonder if there’s something wrong with the house, sending
potential offers even lower.
While it’s difficult to quantify how much money
is lost due to overpricing, certainly the opportunity cost is obvious.
|
