The Dangers of Overpricing your Home

The Truth about Overpricing your Bay Area home

Click here to skip down to the charts and graphs for Santa Clara, Santa Cruz, and Monterey counties.

Fair market value is that price a qualified, reasonably knowledgeable buyer is willing to pay, which a seller, not under duress, is willing to accept after the home has been properly exposed to the market. Many sellers, however, set a price higher than the market will bear – to their significant detriment. This article explores the dangers of overpricing your bay area home, with lots of facts, figures, charts, and statistics.

Ironically, instead of getting more money… Over-pricing usually stigmatizes a property and reduces the eventual sale price to less than it would have been with more realistic pricing.”
House Selling for Dummies

Neither agents nor sellers determine market value: Only the market – willing and able buyers — determines market value. Agent and seller work together to create a plan which includes pricing, preparation and marketing — to maximize the conditions that reliably achieve the highest possible sales price.

The vast majority of buyers will not make offers on homes they consider significantly overpriced. Either they don’t want to waste their time, or are uncomfortable with possibly “offending” the seller. In any case, they simply move on to other listings.

Well-priced homes create a sense of urgency in the buyer/broker communities to act quickly with strong, clean offers, and often lead to competitive bidding between buyers – which is the most likely way to increase sales price. Overpricing wastes the optimum moment of buyer and broker attention: when it first comes on the market. This moment cannot be recaptured, and is one of the many dangers of overpricing.

Overpriced homes kill any sense of buyer urgency and take much longer to sell, which then significantly reduces value in buyers’ minds: “There must be something wrong with it if it hasn’t sold by now.” It almost always eliminates the possibility of competitive bidding.

Overpricing helps sell competitive properties, since they stand out as good values in comparison. If a listing has inadvertently been overpriced, the sooner it is recognized as such and the price reduced, the smaller the negative impact. Price reductions must be big enough to regain the attention of buyers and their agents – typically, at least 5%.

In order to win the listing, some agents suggest a list price considerably higher than what they believe market conditions and comparable sales justify—because they believe this is what the seller wants to hear. This is called “buying the listing” and is a violation of the fiduciary duty of honesty that an agent owes their client.

If you’re looking to get the highest price possible for your home, avoid the dangers of overpricing. The formula for getting top dollar for your home is simple (but the implementation can be complex):

Price it right to begin with.
Prepare the home to show in its best possible light.
Implement the most comprehensive marketing plan possible.
Hire an agent who knows how to negotiate effectively on your behalf, and manage the disclosure and due diligence processes.

The difference can add up to tens or even hundreds of thousands of dollars. For example, in Santa Clara County, overpriced homes (those requiring at least 1 price reduction) sold for 8% less per square foot, and took six weeks longer to sell, than homes that were initially priced correctly.