Pricing Pitfalls

A common mistake when selling your home is pricing pitfalls. For the last few years, it has been a sellers market. With a plethora of buyers, low interest rates and low inventory, a perfect storm was created that pretty much allowed sellers to get whatever, or more, than they set that price to be.  But real estate is a cycle and the sellers market is starting to soften.  Interest rates are more than double what they were a year ago which has priced many buyers out.  Homes are staying on the market longer, we are seeing price reductions again and while inventory is lower than normal, there is still a strategy for selling a home. Pricing your home correctly in this shifting market is part of the strategy. Sellers have a lot of info at their fingertips but can still make mistakes when pricing. Here are a few pitfalls to avoid.

Sellers can use emotion based pricing. This can cloud over logic and make sellers ignore fact based pricing.  You can love how your home looks and not take your broker’s advice on things that need to be changed or neutralized to appeal to a wider range of buyers.

Sellers think it’s OK to price based on what they need from the sale.  Yes, sellers do need to calculate what they will need from the sale to buy their next home.  Calculate this and see if that flies with the current market value.  Sometimes it isn’t the right time to sell. Buyers also have a lot of info available at their fingertips and they can see what an owner paid for their house and what improvements have been made.  They aren’t going to be willing to pay the incorrect asking price based on what the seller “needs”. 

Sellers use Zillow and other online estimates of their homes value.  Once again–all the info is out there but must be used with good judgment. Sellers are always willing to argue for using that Zillow estimate when it is higher than their broker’s suggestion but I have never had a seller tell me the price needs to be lower because my suggested price was higher than the Zillow number. The Zillow algorithm can get it close in many cases but still the most accurate way to price a home is having a local broker do a market analysis using current area sales.

Sellers sometimes want to put their house on the market to “test the waters” and have no urgent need to sell.  Nothing is more frustrating than trying to market a home that the seller doesn’t really care about selling.  But again, the info is out there.  Sellers can see how long the house has been on the market.  A stagnant listing or one that goes on and off the market raises suspicions with buyers.  

Sellers want to inflate the price so they have room to negotiate.  Sellers know what their home is worth.  Over pricing the house by even as little as 5% can scare buyers away. Buyers are willing to pay what sellers what their homes are worth but don’t want to get in an emotional negotiation on a home they think will not have a positive outcome.

Sellers had to pay a high list price.  Over the past few years, sales prices often mirrored or exceeded list prices.  Unfortunately the real estate market goes up and down.  Even if your home appraised for the sales price at the time you purchased, a fair price for the house may be less in today’s market. Sometimes sellers are lucky but sometimes they aren’t and have to buy high and sell low or wait it out.

Sellers ignore the true comparables to their home.  The market analysis or CMA done on a home compares it to similar homes in close proximity.  They will need to be of similar square footage, style, level of update/age, acreage and amenities.  At least 3 comparables are used.  Sellers sometimes want to refute the comps, finding reasons theirs is superior. But in the end, that large added mega deck, pool or extra pricey metal roof a seller installed may not add equal value to the home.  Even homes that have recently sold in the seller’s neighborhood are not the most accurate comparable if they are twice the size or on a double lot.  In the end, when a buyer finances, the bank will require an appraisal and this actually determines the amount a buyer can get a loan for.  Brokers want to come close to that number with their CMA so that sellers aren’t expecting a sale price that is unrealistic.

These are some of the main reasons sellers overprice their homes. Markets can turn quickly.  Pricing needs to be done at the time you are ready to list and can change in a matter of months so have it reevaluated if it has been longer than 30 days. Work with a reputable local listing agent that knows the market conditions and sellers can avoid some of these pricing pitfalls.

Written by Polly Leadbetter
Engel & Völkers Foothills