One of the most common mistakes seller’s make when pricing their home is to price it higher than the market value to pad it for negotiations. It seems logical but it is in fact one of the main reasons sellers end up making less money on the sale of their home than they would have gotten if they priced the home at market from the outset.
Scenario – Two seller’s with the exact same house, same community, same features inside of the home are in competition with one another. Seller 1 prices the home at market value – $300,000. Seller 2 prices the home a little above market value anticipating a lower than list price offer and closing help. He lists for $325,000.
Let’s break this down from the perspective of the buyer:
- It’s a buyer’s market and the inventory of homes is high
- Two of the exact same homes are on the market and although I like both, I can save $25,000 if I go with Seller #1
- I am still not going to offer full price because it’s a buyer’s market and I don’t have to
Can you see the disconnect? Seller #2 wants the buyer’s to write an offer on the house but the buyer doesn’t see the value because the first home is so much cheaper. So in this scenario, seller #2 is helping to sell his competition’s home. I loooove when my competition uses this logic.
Now, here’s the second rational for pricing at market. If we are priced too high and we get little to no buyer’s looking at the home, I don’t even have the opportunity to try to negotiate. No one is coming to the house let alone getting any offers.
On the other hand, if we price it at market value and get buyer’s looking at the home, we are creating an environment to increase the likelihood of multiple offers. Even if we don’t get multiple offers, we will be getting interest and NOW I am in a position to negotiate with a lower than market price.
It is simply removing control from the buyer and keeping the control on the seller’s side.
There is another far greater danger to pricing too high in a declining real estate market. As your home sits on the market, the value goes down. Let’s say that in Anne Arundel county the market is declining approximately 15% YOY, if you are on the market for 6 months, the value of your home potentially has gone down 7.5%. When you realize the house is starting to get stale and decide to reduce the price, the $300,000 house that was priced at $325,000 is now valued at $277,500 (assuming the 7.5% decline). You decide to reduce it to $300,000. That is what we refer to as chasing the market.
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