Consequences of Overpricing
When you decide to sell your property, one of the most important decisions you must make is your listing or asking price. While you don’t want to underprice your property, you should be aware of the following generally accepted statistics in the real estate industry:
- Properties priced within 4% of the average of recent comparable sold properties have an 85% chance of selling within 90 days at fair market value.
- Properties priced between 5% and 8% of the average of recent comparable sold properties have a 50% chance of selling within 90 days at fair market value.
- Properties priced between 9% and 10% of the average of recent comparable sold properties have a 20% chance of selling within 90 days at fair market value.
When determining the listing or asking price of a property, owners should keep the following in mind:
- What you paid for the property does not affect its current value;
- How much you owe on the property does not affect its current value; and
- How much cash you need to acquire your next property does not affect its current value.
Supply and demand factors determine the current value of all real estate. In short, property is worth what a buyer is willing to pay for it. Establishing a listing or asking price that is more than 4% above the average of recent comparable sold properties creates the following risks:
- Agents will not show the property to prospective purchasers because they fear losing credibility with their clients if they show an overpriced property;
- Buyers seeking properties within a certain price range will never be exposed to the property. For example, a prospective buyer seeking a property valued between $450,000 and $500,000, may never be exposed to a property worth $500,000 that is overpriced at $525,000;
- Your property will be used by agents as a comparable to help them sell other properties that are listed for sale;
- Sellers that start high and stay high may be branded as unreasonable, causing agents and buyers to pursue other properties;
- Many buyers hesitate to make offers on overpriced properties because they are embarrassed to do so;
- Marketing time is extended causing some buyers to believe there is something wrong with the property;
- When some buyers see a property on the market for a long time, they assume the buyer will be under pressure to sell. Consequently, they tend to make low offers.
Properties sell fastest and for the highest price when there are many real estate agents competing with client offers. Reasonable listing prices generate multiple offers.