The most important decision you’ll have to make regarding the sale of your home is how to price it. How you price your home will not only determine how quickly you sell; it will also determine how much money you walk away with.
So you must put great care into coming up with an asking price for your home. Setting an asking price for your home is tricky. On one hand, you want a price that is competitive with prices of other properties on the market so that you can get offers on your property. On the other hand, you want the asking price sufficiently high so as to bring you the highest possible return after negotiations.
Most sellers fail miserably at this task.
While very few sellers actually under-price their homes, I would say from my experience that probably two-thirds of all sellers make the mistake of overpricing! As a result, most homes sit on the market for many months with the average seller reducing his asking price twice before the home sells.
A survey suggested that the typical seller would have sold more quickly and without lowering the asking price had he priced his home correctly in the first place.
Clearly, pricing your home close to the market is to your advantage while overpricing your home can hurt you.
Here are some reasons why so many people overprice their homes?
1. Inaccurate Assumption
To see the folly of such an approach, imagine that you want to purchase a Honda Civic, “the car that sells itself”. You go over to your local Honda dealer who informs you that he’s asking $50,000 for the car! You reply that is you had that kind of money, you could buy a Mercedes or BMW. “Well”, answers the dealer, “I’m trying to put two kids through school. I really need to get $50,000 for it.” You walk across the street and buy a Toyota Tercel instead.
2. Emotional Attachment
Homeowners are emotionally attached to their homes, and to a large extent equate the value of their homes with their self-value. Everyone feels that their home is special, and you’re probably no exception. After all, you chose that home over dozens of other you looked at. You furnished and decorated it, adding personal touches. Perhaps you watched your children grow up there. All of this tends to cloud your judgment and affect your decision-making.
No matter how knowledgeable you are about real estate, you are still prone to making mistakes when it comes to your own home.
We recently hear of a real estate developer who has an excellent track record of pricing his projects so that they sell out quickly and at a substantial profit. But when it came to pricing his own home, a gorgeous English Tudor home with spectacular views, he lost his objectivity. His home has now been on the market for over one year and he has yet to receive single offer!
This brings up another important point: no matter how spectacular your home is, you will not be able to sell it if it’s not priced correctly. There is a right price for everything: a gorgeous mansion will sit on the market if it’s overpriced, while a starter home beside the railway tracks will sell quickly if the price is right.
To make sure that the price is right, you must detach yourself from your home and try to think of it purely as a business asset.
3. Denial
Another reason why people overprice their homes is that they find it hard to accept the value of their home. Denial is the natural way that human beings react to terrible news. For example, psychologists have identified denial as the first stage a terminally ill person goes through when learning of this illness. The person then goes through the stages of anger, bargaining, and grieving before finally accepting their fate.
Of course, being told that your home is worth tens or even hundreds of thousands of dollars less than you thought is not nearly as terrible as being told that you’re going to die in six months. But most people react in a similar way. It often takes several months for the average seller to accept the truth about what their home is worth.
4. Pride
Very often pride also comes into play. The seller who bought his home at the top of the market feels like a fool because he paid $500,000 for what is now a $450,000 home. If you are feeling foolish over what you paid your home, don’t be sold hard on yourself. It was hard back then to know that the market would not continue to rise. You weren’t a fool for paying $500,000 back then, but you may be a fool if you ask $500,000 today.
5. Greed
Let’s face it, greed is one of the most powerful human motivators. We all want to get the most we can for ourselves and our families, and usually this involves money. So as we get ready to sell the single greatest financial asset we own, it’s only natural that we start to have fantasies that somebody is going to come along and pay us more money than the place is worth.
Forget it. This isn’t going to happen if you think otherwise you’re fooling yourself. If you overprice your home, not only will you waste your time but you’ll probably end up getting much less for it than you would have had you priced it correctly in the first place.
6. Room For Negotiation
Most people are under the mistaken impression that you have to start high in order to settle at the right price after negotiations. The facts show otherwise. As the statistics at the beginning of this brochure indicate, homes that are priced correctly sell very close to the asking price.
Think about the assertion that about two-thirds of sellers overprice their homes. With all those overpriced homes on the market, think of how great your home will look if you simply price it close to what it’s worth! The home will look like a great buy, and buyers will bid very close to what you’re asking. In some instances you may even have buyers bidding against each other and driving the price up!
7. Lower the price later
Faced with the choice between overpricing and under-pricing, most people would choose the former, and understandably so. The feeling is that an asking price can always be lowered if it turns out to be too high.
The problem with this strategy in a declining market is that by the time you do lower the price, the home will be worth less than when you started. This is known as “chasing the market”.
8. Bad Advice
Many people price their homes according to advice given to them by their friends, relatives, lawyers, or accountants. These advisors may be bright and may be experts in their fields, but they are absolutely unqualified when it comes to pricing a home, and this applies particularly to lawyers.
So if you want to sell quickly and for top dollar, set a seductive asking price. Pay attention to how the price sounds. An asking price of $899,898 sounds so much more appealing than an asking price of 900,000, even though it’s only a difference of $102.
As you may have gathered by now, pricing a home is not an exact science. You’ll know whether or not you’ve priced your home correctly after you’ve had it on the market some time. Ask your Realtor how long the average home is staying on the market in your area. If you’ve priced your home correctly, you should be able to sell it or at least get offers within half that time period. If you haven’t at least gotten offers, then you should go back and re-evaluate your pricing.
