Correctly pricing your home is the most crucial step in your marketing plan. If you overprice your home, no amount of other marketing techniques is likely to bring in reasonable purchase offers. Your home is probably your most prized possession, and you may have made a bunch of improvements to make it uniquely yours. You might think it is close to being the perfect house. However, neither real estate agents nor sellers determine the market value. The market is made up of willing and able buyers. Only the market can decide the actual value of houses. You simply will not sell a $550,000 home for $750,000. 

What Happens When You Overprice Your Home

When a house comes on the market at a price significantly above market value, it immediately becomes stigmatized. Selling agents know the price is too high for the neighborhood or the size, the number of rooms, the location, or something else. Even in a sellers’ market, selling agents will be reluctant to mention the house to potential buyers and if they do mention it, it will be at the bottom of the recommendation list. In a slow market, it won’t even make the list.

Even if a potential buyer does see your listing, their reaction is likely to be that they don’t want to waste time trying to negotiate down a price that is clearly overpriced. Some potential buyers will be concerned a substantially lower offer will offend the seller and then they will be trying to negotiate with an angry and unreasonable seller. In any case, they simply move on to other listings.

Eventually, overpriced houses have to lower the price to attract buyers. The house becomes stigmatized as "PRICE REDUCTION.” That makes buyers think there is something wrong with the house. Instead of getting more money, what was originally an overpriced house ends up selling for less than market value.

Reasons Why Sellers Overprice Their Homes

Over the past two years, home prices have been, well… crazy. But that has changed during 2022 and going into 2023. You can no longer price a house above market value and expect next month’s price increase to make it attractive to buyers. There are common reasons that tempt sellers to overprice their homes. As a seller, you should do an attitude check to be sure you aren’t falling into one or more of these overprice attitude traps.

• Emotions are the number one reason why people overprice their homes. It could be memories of great backyard barbecues, or the perfect kitchen for you, or that your college-age kids grew up in the house. Those are your memories and emotions. Buyers are not interested in overpaying for your memories. They are looking for a home to call their own where they can make their own memories.
• Over improvement. If you make improvements shortly before selling your home, do only enough to bring it up to market value. That makes the house sellable. You are never going to recover the full cost of improvements. You want to recoup every dollar that you spent but that doesn’t happen. If you want to make major improvements to your home, do it several years before you plan to sell. The most value you will get from the improvements is your own enjoyment by continuing to live there for a while.
• You need more money to move up to a better home. You may need more money to buy a better home but if you don’t have enough money, a buyer certainly isn’t going to give it to you just because you ask. Your home will sell for what it will sell for — period.
• Not understanding your local real estate market. Just because your cousin’s 1,200-square-foot house in San Francisco sold for $2.3 million, doesn’t mean your similar house in Nebraska is going to sell for anything close to that amount. It doesn’t matter what your dad, your neighbor, or someone at work thinks you should list your house for. You need to sit down with your local real estate agent to have your local market data explained to you. Ask questions until you understand the pricing in your local market.
• Too much bargaining room. Some sellers start too high with the thought that they will bargain down to a lower price. That by starting high, they will get a higher price in the end after letting the buyer bargain down to a lower price. Remember, when you price too high to start with the house becomes stigmatized when you have to hang out a sign saying, "PRICE REDUCTION.”
• Believing Zillow Zestimate. Zillow Zestimate is a math algorithm. It takes a bunch of numbers that may or may not be current or accurate. It has never talked to anyone in your neighborhood, nor does it know what condition your house is in or the condition of recent sales that it is using for comparison. Your local agent knows the real marketplace. 

How to Price Your Home Correctly

There is an old industry joke about the seller thinking they have a multimillion-dollar mansion, the appraiser valuing it as a middle-class home, and the buyer seeing it as a fixer-upper. In almost all cases the appraiser is going to be the most accurate.

If you want to sell your house quickly, the best strategy is to price it slightly below the current market value. If you have time, one of the best homes in the neighborhood, and are in a strong seller’s market, you might price it slightly above market value but not so high that it scares away potential buyers. Typically, you should have three market valuations done by three agents and pick a price close to the one in the middle.

What else should sellers do to arrive at the correct price? Please leave your comment.

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Brian Kline

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News

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