Why the Market Price is Your Best Price
As with many areas of life, real estate, too raises a question of balance. Price too low and your net proceeds are less at closing. Yet price too high and you may never close. So what’s a seller to do?
Because overpricing is more common, there are several reasons why it can create the ‘double whammy’ of lowering your ultimate selling price, while extending your market time and increasing your frustration. Here are just a few:
The higher your price over the home’s true value, fewer buyers will be aware of it. That’s because when your home is priced above the competition, guess whose property buyers look at instead? Other homes, not yours. When your home is more expensive than the market demand for it, buyers best-suited to purchase it don’t even know its for sale. This makes sense, since it’s not in their price range.
Besides, Realtors aren’t even supposed to show buyers homes for which they’re not qualified to purchase. The end result for homesellers is second guessing yourself and frustration.
Most buyers have a budget, especially for a big ticket item like a house. So even if buyers happened upon your above market price property and even fall in love with it, there’s a good chance it will be outside their price range, unless you lower your price. This brings us back to correct pricing at the beginning, since you can save a great deal of waiting and frustration by starting out on the right foot.
3. Price Barrier
Most homebuyers are pre-qualified by their lender. And while it’s possible for buyers to be qualified for an odd figure, like $461,250, more usually that figure will be an increment of at least $5,000, but frequently $10,000 or even $25,000. What does this mean to you as a homeseller? Assuming they even find your property, if buyers are qualified up to $465,000 and your home is listed at $475,000, in order for them to make it work, they’re likely to either come in lower than your price or not make any offer at all, even if $465,000 is an offer you might consider.
4. Most Buyers Do Their Homework
Homebuyers usually do their homework, or they have their Realtor do it for them. This is another reason for properly pricing your home. In the past, easily available information on home values was rare. Now, there are many ways homebuyers and their agent can compare your home with other, similar homes that have recently sold. This means buyers now have a better sense about homes that are market priced, or not. If you make the ‘cut,’ expect them to tour your property, or make an offer. If not, expect lackluster showings and offers.
Another reason to market price your home involves the appraisal process. Let’s assume you overprice your property, yet still find a buyer willing and able to pay your asking price. In any transaction where buyers need a loan, the appraisal is a significant hurdle. A key component of the appraiser’s job is to make sure the lender doesn’t ‘over loan’ on the property. That’s because lenders dislike risk and don’t want more owed on the property than what its worth. So even if the buyer agrees to pay a higher than market price, your transaction could fail because the appraisal came in lower than the purchase price.
6. Competition & Bidding Wars
Fact is, buyers tend to get excited about properties they can actually afford. As a homeseller, it’s also important to put competition to work for you. The whole premise of the multiple listing system is to expose your property to the maximum number of qualified buyers. By overpricing your property, you in effect dampen the competition component, thereby defeating the purpose of multiple listing.
Once your property’s market time has exceeded the average for your area and the newness has ‘worn off,’ buyers may start to wonder what’s wrong? This can cause them to avoid touring altogether, since if it hasn’t sold by now, your home isn’t likely to be so desirable. Homes that have been for sale a lengthy period of time also routinely receive lower offers than those new to the market.
The Bottom Line
Realtors have a wealth of information at their fingertips to best assist you in determining your optimum price. Some of the factors considered include recent comparable sold properties, your current competition, plus other important criteria like housing inventory.
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