Risks To A Seller By Overpricing

The seller of a property is the one who sets the listing (or asking) price, not the agent for the seller. The agent’s responsibility is to provide all of the factual information from which the seller can decide the listing go-to-market price.

Every seller wants to get the maximum price they can for their sale. They often believe that the best way to accomplish this is to price high and either see if a buyer “bites’ at the price, or if not, they will have room to reduce the price or “bargain down”. Neither of these are good strategies. Overpricing of a home does not increase the seller’s options, instead the higher price makes it difficult to sell.

Risks to the seller by overpricing include;

  • Less exposure to qualified buyers – Buyers almost always buy the most house they can.   If they are prequalified by a lender, they know the upper limit to their buying capability. If the seller’s house is priced above their limit, they never will see it.
  • Fewer offers – If the house is overpriced relative to its true market value, prospective buyers will be discouraged from viewing the house and also in making offers.
  • Agent turnoff – Most buyers become aware of houses on the market by their agent informing them. Agents can be “turned off” from showing homes or making their buyers aware of them if they believe that the home is overpriced. If they do inform their buyers or show the home, it usually is to provide an example of a home that is overpriced, rather than to present it as a good opportunity for their client to buy.
  • Poor response from signage or advertising – Buyers who learn about the house from advertising or signage on the property will be turned off if they believe it is overpriced. If the price is not included in the advertising or signage and they make the effort to follow up, they can be disappointed and not proceed further.
  • Financing – Overpricing limits financing, which limits qualified buyers. A house that doesn’t appraise because it is overpriced, can provide an exit for most buyers in contract, because they may not have the additional cash to cover the difference between the mortgage and the contract price.
  • Less net proceeds to the seller – Overpriced properties tend to sit on the market. They get old and stale with long Days On Market. Generally then the seller will be forced to lower the price even below the true market in order to attract a deal, resulting in less net proceeds than if the property had been priced properly from the beginning. Also, as the home sits on the market the seller still has to bear the carrying costs of not having a sale.

The summary is, in most cases it often is in the seller’s best interest to price right on the true market, or slightly below, in order to minimize time to contract and also maximize net proceeds.

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