That’s one piece of advice that every real estate agent on earth SHOULD tell you as a property seller, because it will take longer to sell, create much more stress than you need and your property will sell at a much lower price than you could have sold for. Yet, sellers ignore this advice so agents go along with it and overprice their homes anyway, hoping theirs will be the one to defy market physics.
Why do they do it? Lots of reasons:
- They feel entitled to make a profit
- They feel their home is superior to other similar homes
- They want a return on improvements and repairs
- They need to buy in Melbourne or in Sydney, which is far more expensive
- They want to buy a bigger, more expensive home
- They want to pay off loans, credit cards etc
- They want funds for retirement or some other financial goal
- They think buyers want to negotiate
- They think real estate agents can get it sold for more if they just work harder
- They don’t understand the ageless fundamental principle in that; in over 95% of cases, the best price is obtained when the property is first on the market.
Did you notice that not a single one of those reasons has anything to do with the current market value of the home?
Anecdotal evidence suggests that sellers base their asking prices on their original purchase price. In other words, they want to live in the home for a number of years, and then sell it for more than they paid for it. That’s understandable, considering that typically, homes beat inflation by one or two points, but the market doesn’t always co-operate. In Tasmania, there are some areas which are selling for less in 2016 then what was paid in 2008/2009. If you overprice, your home is going to stagnate on the market. The right buyer for your home might not know your home exists if they use price perimeters to search for a home. That means a typical search between $365,000 and $400,000 won’t include your home priced at $415,000.
Buyers tend to search in increments of $50,000 (just look at realestate.com.au). Pricing just over a logical range endpoint like at $355,000 or $405,000 will exclude that home from some search results.
Setting a high price with wriggle room to reduce the price later is not a successful strategy. You might get some showings, but you won’t get offers. Your home could sit without an offer for a month or two before you take action to reduce the price. Once you reduce the price, buyers tend to think there’s something wrong with the house, sending potential offers even lower. Buyers are now more educated and astute than ever before. Price your home just under breakpoints. $249,000 to $275,000 instead of $255,000 – $280,000. Since you’re already expecting to negotiate, a lower price point will get buyers through your front door and it may well surprise you what the outcome will be. To prove this point, we recently sold a property, marketed within a “buyer price enquiry range of $650,000 – $700,000” for over $740,000 with 39 viewings within 5 days, competing offers, with owners being ecstatic. So ensure you put your house “in” the market and not just “on” the market.