Selling Your Home, Not Your House: The Dangers of Overpricing

Over-pricing is an epidemic. I'll just come right out and say it. Here's why. There's a rule of real estate that generally applies to sellers and buyers of houses, that says

"Sellers think their house is worth more than it is, 

and Buyers think every home is too dear."

And they're both right. Notice the use of the words "Home" and "House", which I'll get to later. There is a distinction. 

Negotiations in a real estate transaction can be tough between brokers. But both your Listing Agent and your Buyer's Agent know what that house is worth. That's because they've done the research to find out. And when they're battling it out for you, they both know at about what price the place will eventually end up selling, because it's not magic. It's science. 

However, pricing a house correctly is truly an art. There is a tendency to feel that because you have lived in your home for years, know it inside and out, remember every ounce of labor you put into all the projects that you did on her, that she's worth all of that sweat and toil and love. And you're right to feel attached to all of those memories. Your kids grew up in that house! You made breakfast in that kitchen every morning and you partied on that patio every summer. And no one understands the value of that home to a family more than your agent. She sees her clients grapple with the huge transition of moving, day-in and day-out. 

Another factor is how much money you've put into it. You may not have much room to play with in order to stay in the black, especially if you bought just pre-'08 when the market was at its height of craziness. 

Short of a full renovation, adding a bathroom or more bedrooms to the place, all that art-of-living and investment doesn't translate to market value when it's time to sell. When it is time to sell, your Home becomes a House. That's the deal. You need, as a Seller, to make a switch in your mind when it comes time to move on. In many ways, it's like a divorce. What was no longer is. And now you must be ready to cut the emotional ties that keep you bound to that entity in order to stay sane and to move onto your next adventure. The healthiest way to do this is to change your mind. It's not a home anymore. It's truly, now, just a house. 

The adage, "Home is where the heart is", is really true in this instance. You will have all your memories and family in your new home. When you make this change in your mind, you will have taken the first step toward pricing your house correctly for the market. It's only worth what a willing and able buyer pays for it. And this is not a number you make up in your head. It's a real number come to by your agent who does much research to discover. 

Here's what happens when you over-price your house. Nothing. Even in a really hot market, like Portland Oregon in 2015, in which there is very little inventory and we see bidding wars driving up prices, if we price a home too high, it will likely not move. You may get calls, showings, interest, but no offers. For months. A listing is a lot like produce. As it ages, and the date on the package gets further and further out, it takes on a stigma. Agents start saying, "Why isn't that one moving? There must be structural problems, or the roof must have a hole in it". It is irrelevant if any of these things are true. There is an impression that is created the longer a listing sits on the market with no movement. This makes it, with every passing day, harder to sell. 

The problem cascades, because agents have a trick they pull when writing an offer on an old listing. They say to their selves and their clients, "Well, if it's listed at $299,000, was originally listed at $319k, five months ago, I'll put in an offer for $279,500 and see if they go for it." There's no skin off their nose if you say no. You've been waiting five months for this offer, you may very well take the first thing that's thrown at you. Don't worry, they'll want repairs, too. 

There is a cure for this epidemic of which I speak. It's the art of proper pricing. My mentor when I first started in real estate, Chris Love, of John L. Scott in Portland, advised me well in this. He taught me that pricing is critical. Pull comps (comparable properties) from the past five months or so. Look very carefully at everything that has sold in this time frame, and study a number of factors:

square footage

number of bedrooms/bathrooms

lot size

amenities

updates, if any

location and demography

schools

walkability

Determine the closest comps to the subject property (the home that is going on the market). There may be a couple at varying sale prices that are very close. They may have sold at different times of year by a couple of months, spring v. winter... and locate the most accurate market value possible for this house. 

Once I have determined what the home is likely going to sell for, the art of pricing comes into play. We now know the pitfalls of over-pricing. But what happens if we, under-price the property? 

Here is a couple of things that happen when you under-price. One is, you scare your seller. That's true. It's easy to think that the price is the price. So whatever you say it costs is what it costs. But that's not how it works. Under-pricing by too much can backfire. However, if you have done the above work to determine the actual likely market value of the house, you will not under-price too drastically. Under-pricing by about $5,000-$7,500 is a great way to get buyers clambering. And that is what you want. You want a bidding war! You want buyers writing offers on your place the day it goes on market, with escalation clauses (ask your agent about those); you want to have a choice of highest and best offers. This can have the wonderful effect of allowing your home to sell at above market value. You have created demand by under-pricing your house. I have seen houses sell at $15-20k above asking in this market. That wipes out the agent commission in one fell swoop! 

Don't just take your agent's word for it. As I said, it's an art. You should look at the comps yourself and really take a hard look at all those factors I listed. Compare without bias your property to your neighbors' places. The key factor in this is the psychology that I mentioned earlier in the article. If you can make that switch to looking at your home as just a house that is for sale in an open market, you will be much more even-headed when it comes to making that final determination of list price. 

Your agent is there to work for you. He is of a strategic mind every day. When you steel yourself for the market, too, you create a team that is unstoppable. And you win in the end!

Zack Rouse

Full Service Broker in Portland, OR

Summa Real Estate Associates

4506 SE Belmont St., #103

Portland, OR 97215

503.381.0552