| The most critical step in preparing to market a home is determining the listing price. Every seller wants to realize the highest possible return from his or her property. It is obvious that pricing a property too low cannot provide the highest return. It is less obvious, but true, that pricing a property too high will also produce less than the best return. The right price produces the best return.
Too high a price is costly because it causes a property to miss its market. When a price is too high, a great many buyers for whom the home would be right won't see the home because it is out of their price range. Buyers who are in the price range suggested by the asking price will not see the property as a good value because other homes in the same price range will tend to offer more in terms of features, condition, location, etc. Hence, the buyers who can qualify to purchase this over-priced home will buy something else instead.
Further, real estate agents will be reluctant to show the over-priced property, except perhaps to make a competing property look like a good buy.
A good agent, from the standpoint of
buyers, is not one who can sell over-priced homes to gullible people, but one
who presents buyers with homes that are good, fair values.
Sellers often feel that they want to "test" the market at a high price. While there may seem to be no harm in "starting high" and lowering the price if necessary, testing the market can be risky. A property receives its fullest exposure in the first three to five weeks on the market. The best buyers for any property are those choice prospects who will see a property during those first weeks. If the property does not appear to be a good value, those buyers will decide not to buy; and it is rare that such buyers return to a property later, even if the price is reduced. Thus, the person who tests the market is likely to turn away the best of his potential market.
Another danger of testing the market is that the seller will come to believe in what started out as an exploratory price. Even when the market provides evidence that the price is too high, so many sellers are unwilling to reduce their prices. Or, what is worse, a seller may turn down an offer that is low relative to the asking price but, which is, in fact, the best offer he will ever receive.
In one example not long ago, a seller whose house was listed at $600,000 turned down an early offer of $450,000. A year and a half later, the house sold only after the listing price was reduced to $395,000.
In another example, a beautiful property in Clackamas County sat on the market for months at $495,000, about $100,000 above where it should have been priced. Five price reductions and 4 real estate brokers later, the property was finally priced about $15,000 less than where it should have been originally. After several more months on the market, the owners finally threw up their hands in frustration. They took their home off the market after nearly 4 years of trying to sell. They're still living their today. But what dreams and what opportunities did they forego?
The over-priced house will languish on the market. And statistics from Realtor® multiple listing services show that the longer a property is on the market, the lower the selling price is in relation to the original asking price.
The owner of an over-priced home risks receiving less than market value not simply because the price ultimately received is lower than might have been obtained with a more realistic initial price. The excessive price creates other costs.
Some of those costs are financial. A home on the market is a non-productive asset. An unsold house represents financial resources committed to continuing ownership costs—interest, taxes, insurance, maintenance—as well as the loss of potential alternative uses of the funds that are tied up in the property. It also represents foregone opportunities. The longer the home is on the market, the longer the seller must tend to the activities of keeping the property in peak market condition. This leaves less time for other activities.
There are also non-monetary costs. An unsold house prevents the owner from proceeding with whatever plans led to the decision to sell: purchase of a different home, moving from the area, consolidating households, liquidating an estate, concluding a divorce, etc. The costs of deferred personal plans cannot be measured, but they still must be kept in mind when pricing a home.
Pricing a home is part art, part science. Like science, the pricing process should be based on evidence—the prices paid for comparable properties in recent transactions. However, because no two homes are exactly alike, the evidence must be evaluated and a judgment reached. Because each of us has a great deal of emotional attachment to his or her own home, the judgment of a professional agent, who can take a more detached view, is vital.
THE RIGHT PRICE PRODUCES THE BEST RETURN. THE COST OF OVER-PRICING CAN BE VERY HIGH.
Portions of this article were excerpted, with permission, from The Scottsdale REALTOR®, a publication of the Scottsdale Association of REALTORS®. |
