Selling? Overpricing your home will cost you

The most common mistake that sellers make when listing their property on the market is inflating the asking price. They often ask for a higher amount in order to give themselves a cushion during the negotiation process.

“Naturally a seller already has an amount they would like to sell the house for the moment they put it up for sale, but in anticipating the possibility that prospective buyers will put in lower offers than the initial asking price, sellers often inflate the price to counter this and still get out what they hoped for,” says Grant Gavin, Broker/Owner of RE/MAX Panache.

However, he says the problem is that if a property is overpriced, it will have limited appeal to buyers.

“Buyers won’t take the time to view a property that they deem to be overpriced, and would rather look at homes priced at a reasonable market value,” says Gavin.

An inflated asking price will only make correctly-priced homes look more appealing, but it also increases the chance of the home staying on the market for a long period of time.

“Generally, homes that stay on the market for too long lose their appeal and sellers are eventually forced to lower their prices anyway. In many of these cases sellers often end up selling their homes for a lot less than what they would have received if the home was priced correctly at the start,” he says.

Emotional attachment is another reason why many sellers overvalue their property.  Homeowners who have lived in their home for many years and have put a lot of time, money and effort into making it their own, will feel that it may be worth more than the market dictates.

“Emotions are often what lead sellers to see their home as having more value than other properties in their area, however, buyers won’t have the same perception of the property,” says Gavin.

While price is not the only factor that buyers consider, he says homes that are priced correctly at fair market value will appeal to a larger target market and won’t be on the market for very long.

When buyers are comparing properties in the same area that offer similar features, price becomes the number one factor that will influence their decision-making process.

“With the number of properties available on the market showing signs of growth, sellers that overprice their homes are taking themselves out of the game in the current competitive environment,” says Gavin.

“According to data, homes that are priced at fair market value are generally sold within the first 42 days of being listed, while homes that are on the market for around five to 12 weeks sold for 3% less than the asking price, homes listed 13 to 24 weeks sold for 6% less, and houses that were on the market for 24 weeks or more sold for more than 10% less.”

The question is, how does the seller know that their asking price is market related?

Gavin says a real estate professional will be able to guide the seller through the process of correctly pricing their home”.

“An estate agent will be able to provide the homeowner with a comparative market analysis (CMA), which will give them an accurate indication of what other homes are selling for in that specific neighbourhood,” he says.

“Factors that should be included in a CMA are the average price per square metre in the area, recent of similar homes and comparative prices of other properties that are still on the market. This information will help establish a reasonable price bracket for the property,” says Gavin.

Working within the correct price bracket for the property, an agent will then be able to determine what features or unique qualities could set the home apart from others in the area to give a more accurate gauge of its value.

“Market conditions will have a massive influence on the estimated value of the home. Sellers will need to adjust their thinking to relate to the current market,” says Gavin.