The Danger in Over Pricing Your Home
Price reductions are never easy on a seller. Sellers all have goals that are often based on what they need to get after paying off a mortgage. But the price a seller sets is not dictated by what the seller needs, but what a buyer is willing to pay and what an appraiser will report with sold comps in the area.
Here are some thoughts from other realtors on over pricing a home:
“No offers after 30 days on the market means the market is telling you, “This is not the right price.” While it could be poor marketing, if it’s on the MLS and accessible but no offers, price is what needs to change.”
“Most home sellers sell their home based on their own needs and cared little about what the going rate is. This is why some just do not sell.”
“When homes aren’t getting shown regularly there’s only one reason: “The Price!” Many homes simply aren’t priced right to begin with and all this does is add on Days on Market which always comes back on the Seller as buyers interpret higher Days on Market as an invitation to bargain hard. Reducing the price is not a red flag, it simply indicates a pragmatic Seller responding to market condition.”
“If you have no offers then of course you are priced to high you need to consider the market in your immediate area that is in keeping with the price of sold comps in your area. Lower the price to attract buyers. Is the Home easy to show? How about open houses are there any? Has it been shown on a Broker tour? I would lower the price and advertise it all over the net and hold the home open and make it easy for other agents to show it. Remember ANY home will sell if it is PRICED RIGHT.”
“Does your home smell like your pets? Have you had any feedback as to the smells of pets? Many buyers & their agents will be turned away by this.”
“Have the appliances, surfaces, amenities been updated or does the home look like it was 15 + years ago? If a seller does not want to do these upgrades, then the home price should reflect the lack of upgrades.”
“If you’re too high, you’ll need to continually reduce the price until you hit that “magic” number. It’s called chasing the market down, which is a bad thing. Buyers will begin to wonder if something is wrong with your house and how much lower will you may be willing to go. Ideally, you want no more than one price reduction.”
“When a house is overpriced in the market, a buyer who gets a lower appraisal will either expect the seller to lower the price, or the buyer can add more money from a non loaned source to pay the difference. Most buyers can’t do this and now the home has been off the market for 30 + days.”
“If a seller states that they are not in a hurry to sell and that they have priced the house higher than the neighboring market, it still will not sell until the price is lowered & in keeping with the local market. If an appraiser is involved (which is 95% of the market sales) it still will not sell at the higher price.”
“One of the biggest misconceptions in real estate sales is that higher asking prices lead to higher sale prices. This is NEVER true when the price is WRONG. Don’t overprice your home! It is the kiss of death and stops a tremendous amount of homes from selling.”
“It’s a seller’s market, but that doesn’t mean every house will sell at any price. If a listing is overpriced and sits on the market for too long, it gets stale. The average time on the market for all homes in Santa Fe was 54 days in September.”
National Housing Market Experiencing More Price Cuts
Aug 16, 2018 From Zillow:
There are more price cuts now than a year ago in over two-thirds of the nation’s largest metros, with West Coast markets reporting the greatest increase About 14 percent of all listings across the U.S. had a price cut in June 2018, up from a recent low of 11.7 percent near the end of 2016. In San Diego, 20 percent of listings had a price cut in June, up from 12 percent a year ago. Home value growth is slowing in almost half of the 35 largest U.S. metros, with Sacramento and Seattle reporting the greatest slowdown since the beginning of the year. U.S. home values rose 8.3 percent over the past year, and Zillow expects home value growth to slow to a 6.6 percent appreciation rate by this time next year.
Santa Fe Residential Days on Market
Santa Fe is a unique market. We do not see multiple offers that are several hundred thousand dollars over asking, even at the high end properties. In the lower end properties under $350,000, which cater to locals or retirees, we also do not see multiple offers very often.
A guideline is setting a price that does not eliminate a potential buyer. For instance a buyer might set a limit of not looking at any properties over $350,000, so if a seller lists a property at $360,000, a buyer might never see this home, let alone make an offer.
Another danger of over pricing a home has to do with appraisals. If a seller & buyer agree to a price of $350,000 and the comparative sales are around $320,000-$335,000, there will need to be some compromise or the deal will fall out. Either a seller decides to lower the price or the buyer needs to come up with the additional funds. Over 90% of these circumstances, the buyer has no choice but to walk away from the deal. Most buyers do not want to overpay for a home that is appraised lower than the agreed upon price.
Statistics for Santa Fe
3rd quarter 2018 54 days (newly added)
2nd quarter 2018 74 days
1st quarter 2018 91 days
So if your home is not selling here in the Santa Fe market and you are past 74 days on the market, the reason for not selling is one or all of the following:
- The price is too high for the area at this time.
- The house does not have current upgrades: granite countertops, new flooring, upgraded bathrooms & kitchens, newer appliances.
- The house has pet smells that immediately turn off buyers & their agents.
- The house has had no open houses or marketing efforts.
- Ultimately, the PRICE IS TOO HIGH!.
It is hard for sellers to come to the understanding that their goals of what they want vs what they can get are out of alignment of what is.
In several neighborhoods around Santa Fe, that were originally sold in 2005-2007, it is not uncommon for sellers to have to bring money to the closing in order to sell their property. I have seen in the history section of the MLS, that many sellers are still underwater with what they paid for their home and what they can currently sell it for, creating a $50,000 – $100,000 loss. It is heart breaking to see this disparity. For sellers who have bought at the high peak of the market, they rarely can sell for close to what they have paid for the home originally. Several upscale communities have this problem because of the past recession.
The Solution to the Danger of Overpricing
Once your home has been on the market for more than the statistical expected days on the market (60 days), it is time to reduce the price of the home. The problem most sellers have is that they are unwilling to take $15,000 to $20,000 off the price and they think by coming off $5,000 it will entice a buyer. Alas, the property will sit on the market for another 60 days with another tiny decrease and the cycle will keep repeating until the seller prices the property to reflect the other sold comparative houses in the neighborhood. The problem with small incremental reductions, is that the agents discredit the homes and start only showing the newly listed properties, making it harder to sell the existing property. A seller will often say that they are not in a rush to sell. Buyers start questioning why the property was on the market so long, as there must be something wrong with the home. And the cycle of not selling in a sellers market compounds.
My advice
Learn quickly from the experience of overpricing your home (and not selling in the anticipated time frame) and price it in alignment with the competition in the immediate neighborhood. This usually means $20,000 off the original listing price for a $360,000 home, more for higher priced homes. A sellers needs for wanting more money, has nothing to do with what the market will bare. This is a very hard concept for the seller, as their needs, wants and desires are not in sync with the current market.
