Overpricing Pitfalls

You probably know this already: Just food for thought.

"Most of the activity on your home will occur in the first few weeks. Pricing a home properly creates immediate urgency in the minds of buyers and agents.

There is a pool of buyers who have seen most available homes in their price range and are now only waiting for new listings or price reductions. A buyer that has been waiting, may fail to see your home if it is priced too high.

Sometimes, a price reduction may be too late, as interest by both buyers and Realtors, may have waned.

Buyers and their agents are very aware of the length of time on the market, the most common question continues to be: “How long has it been on the market?” Often buyers are reluctant to make an offer on a home that has been on the market for “awhile” thinking that there is something wrong with the home.

Unfortunately, overpriced listings frequently help you to sell your neighbor’s reasonably priced home, making it appear that their home is priced very well."

The Role of a Real estate Agent in Pricing

1 Provide you with a comparative market analysis, which is a comparison of recent homes with similar amenities that are available, in escrow and sold.

2 There is no “exact price”; your home is worth what a buyer is willing to pay.

3 The market determines value; together you and your agent determine asking price.

Realtors have no control over the market, only the marketing plan. The seller determines the asking price. Never select an agent based on price.

My information comes from a search only, no direct experience. Although I did list houses FSBO. On the internet for a few years...

Sure the realtor wants you to list it FSBO at an inflated price. That's helpful sabotage. You won't sell an overpriced historic home that has had those historic featured remuddled and only partly done and then she can be the white knight to rescue you from yourself.

Ponies are like boats, only more work They are holes into which you pour money and time, only with a pony you get to clean up the used money coming out the other end. Been there, done that, and would never ever recommend anyone else go down the same path. Get a dog instead. You can put a saddle on a Dane and they actually poop less and never need shoes. Plus, they only live 8-10 years instead of 30.

The red flag in your post for me is the last sentence. I think this is how you are rationalizing your plan to price your house between $20-$30k more than two experienced realtors have priced it.

Remember: buyers don't care what YOU need (just as you wouldn't care what a buyer's max budget is). What matters is if the price can be justified by comparable sales and if the bank's appraisal supports the contracted price.

I totally realize that our idea of our house's worth may be skewed-- we are the owners after all :).

My question, however, is whether it's worth a shot, or if it's pretty much impossible that we could sell for over what the realtors think we can.

We do not need to sell at all. We just have the kind of kids that want to do 4-H and spend their life's savings on a beehive to start a business (at age 8, mind you), so we think we should find something more suited to that.

While they may be correct, I was hoping that if we got it listed right away while the competition makes it look like a great deal that we might have a chance at getting a little more than they expect. If that just doesn't happen, I'd rather not waste my time keeping my house show ready while wrangling six kids.

Holly springs-- she didn't suggest I do fsbo at the higher price, she was just saying I could do a fsbo at the price they suggested to save the commission and get closer to our goal. She was also, of course, very happy to list it if we wanted to.

Speaking from experience, you get one chance to make the first impression and it will always be price that ultimately decides if people want to take the time to bother scheduling an appointment to see your home. Also, IME, buyers expect some kind of price break when you list because they know you aren't paying a realtor. Every time we listed FSBO, we took that into consideration and sold our home for full asking price and above all three times because we factored that into our price.

As far as owner updates and beautiful homes are concerned, that is very much relative. Not trying to sound like a jerk, so I apologize if I do, but there are very few updates that my husband and I see when that we would be willing to pay extra for. Most times we wished the owners had left things as they were because we weren't crazy about the finishes they chose and we know the vast majority expect that they should be able to recoup 100% (and then some) of the cost of their reno, which is oftentimes more personal and less neutral than they perceive. Of course, that may be because we are willing to put in the work to get what we want, rather than settle just because it's finished.

There is a term called "endowment effect" which I would advise anyone looking to list their home to research. To use the definition from Wikipedia: "In behavioral economics, the endowment effect (also known as divestiture aversion) is the hypothesis that people ascribe more value to things merely because they own them. This is illustrated by the fact that people will pay more to retain something they own than to obtain something owned by someone else��"even when there is no cause for attachment, or even if the item was only obtained minutes ago." It's a good concept to keep in mind when determining price as it's something we are all susceptible to. Good luck--I know how nerve wracking this whole process can be, even when it goes smoothly.

Why not invest a few hundred bucks and get the house appraised by a licensed apparaiser?

That may give you an eye-opener and certainly more information than an off-the-cuff estimate by a couple of realtors..

And remember, no matter what you get some over-enthusiastic would-be buyer to agree to pay, when they go to get mortgage the bank will have it appraised to determine the value they'll be willing to lend on. If the house "won't appraise" for the right number, the sale will fall through unless you a) lower the price to make the number or b) the buyer is willing to pony up the difference and pay over the odds for your house. Not many will.

I keep keep bees and I wouldn't recommend an eight year old do that on his own. Not because of the stings, put because of the weight-lifting involved (50-90 lbs at a time), and the current need to use pesticides to combat varroa mites in order to keep your girls alive. However, I do understand the enormous attraction of bees - perhaps your child can find a nearby- beekeeper who would be willing to mentor him. He might also enjoy having an observation hive in his room during the warmer months. (Observation hives need to be moved back to regular hive boxes in the winter in all but the warmest places in the country, I believe.)

L.

I don't think posters have answered your question, "Is it a waste of time?" My opinion is if you are strapped for time, perhaps what time you can allot to the project will be wasted. I plan to do a FSBO in a few months and I consider it a 6 hour a day job. I will have a website, drive around to lessor priced houses in town and drop off my post card in their mail box, my car has a magnetic sign on it and I plan to park it at the nursery school when the parents are there for pick up. I will create a flyer and a pamphlet describing the house. I will list on Craigslist every week etc.

As for price, it was unclear if the realtor quotes were listing or selling prices. If you sell with a realtor for 279 you pocket 15K less right? So I would price it at 289 as a FSBO and see what happens. If the house is as nice as it sounds, a bidding war should ensue and you may get your 300K. Best of luck.

Thanks all!

Mmmmbeeer-- I know what you're saying, as I often feel the same way about completely renovated homes. I would rather do the work and get to pick my own finishes. However, either our market is odd or you and I are, since here renovated older homes come on the market very rarely and when they do they are snapped up. The county tax assessor lives across the street from me and payed a crazy sum of money for a small house a few years back, simply because it was completly redone and he didn't want to deal with anything. So I guess I'm just fantasizing that I might find another such buyer.... Our house definitely isn't 'neutral' but pretty much every person who walks in gushes about it, so that gives me hope.

Liriodendron-- I do need to look into an appraisal. About 5 years ago it was appraised at 212. At that point sections of the house were down to the studs and we added a two storey, 500 square feet addition to the house a year afterwards, which included two additional bathrooms. Because of that, I'm optimistic that coming up with a number close to 300 is not unreasonable to hope for. But it would be nice to be sure.
As for the bees, we purchased the nuc setup to be delivered in May through a man who raises queens for a living. He runs a program where he manages your hive for you and can mentor my son so that his hive can thrive and he can learn how to care for them. We can participate in the program as long as we like and the man will also purchase things the hive produces (such as additional queens) and pay my son.

Belfastbound-- yes, those were the listing prices. If we did a fsbo at 290 as the second realtor suggested we could theoretically pocket all of it if the buyer came with a full price offer with no agent. We in no way have to sell, and as our house is large and beautiful, I only want to sell if we get a great price for it. If we sell it and have to 'downgrade' it doesn't really make sense.

As for the time dedicated to a fsbo, I realize that's an issue. On the other and, the historic neighborhood in our town is very small. Literally about 7 blocks square, and it's *the place* everyone wants to live. We live near a main street (though not on it) and the huge city park and I think even just the visibility of our for sale sign would be excellent. As I said, there are only four other houses in this area for sale and they are either small, in horrible condition, or both. Those are the reasons I thought it might be worth a shot.

Anyway, I realize it may just sit, no showings, no offers, nothing. I hadn't anticipated not hitting the 300+ mark after watching what goes on the market and sells quickly here. So it's kind of made us take a step back and try to reevaluate our game plan. I'm just torn between going with the realtor recommendation and possibly regretting it (if we get a full price offer in the first few days I will feel like we should have started higher) and asking a little more than we're shooting for just to see if there are buyers out there who've been waiting for a non-fixer-upper. My husband's minimum number to be happy with selling was 300, which I guess is only 10k more than the second realtor suggested.

On the other hand, since I've never done this before, I don't know if it's just silly to hope the realtors were underestimating what we might be able to sell it for.

threepinktrees, it sounds as though you really do not know the current market value of your house. I agree with the others that posted that an appraisal might be beneficial in learning a good asking price for your house. In my experience, too many Realtors want to play games with the prices--with the owners and buyers. While many agents provide good and accurate pricing information, sometimes it is difficult to pick them out of the field unless you are aware of them before they begin vying for your business. And yes, I'd be suspicious of the second agent's motives, too. :)
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BelfastBound, about ----drive around to lessor priced houses in town and drop off my post card in their mail box'-----. Just so you are aware,. it is not legal to drop anything in, or even tuck fliers or notes on, someone mailbox. When I discover a business or individual has done that, they are immediately removed from all consideration for transactions. That may sound harsh, but a red flag on a seemingly small thing can indicate a business that is not up to speed about more complex details.

--a twofer--

This post was edited by Gyr_Falcon on Mon, Jan 27, 14 at 4:19

If your home and area is as nice and marketable as you say, then go ahead and put it on the market at the higher price. You will find out w/in a month if it is overpriced or not.
Also, don't let any naysayers here deter you from exploring hobbies for your kids. More parents should be doing the same.
liriodendron, My home valuations are not even close to "off the cuff guesstimates". Agents look at the same recently solds as do the appraisers, but in addition, we are out with buyers everyday, which educates us in the little intangibles of the market (buyers and sellers) that affect value. Appraisers do not have this on their side. They work more in a vacuum than agents do.

Even if you priced it at 309 and received an offer, you must consider if it will appraise at that price. Most buyers will need and demand the house appraise for the sales price.

A few things to consider, some of which have been said:

What you need to get out of a house is in no way related to the eventual sales price.

My personal comment regarding your renovations in a historic district: does it look like the latest and greatest from HGTV? Personally that would turn me off.

You said nearby houses have sat on the market because they are overpriced. So you will add another overpriced house to the market to sit?

Gyr - Not to hijack the thread, but is there is a problem if I mail the post card to people? I receive these all the time from realtors here in Mass. Thx.

Your market is the professor who doesn't have the time or the skills to do the fixing ... just get an appraisal (ask your bank about it, some will do it as a service to account holders)

I'd finish all the bitty projects first, declutter and go for it, right at or under appraisal. Or slightly above and be willing to accept a lower offer.

Point out that it's already "fixed up" for people who want historic but don't have the time.

My son recently found a house that he really liked, but was overpriced and the owners were not budging. The house had been on the market for 5 months, the owners had taken jobs in another area and vacated the property. The agent claims the home, which is in a great neighborhood in a desirable location, had above average number of showings, but only one offer, which owners declined. Given these factors, common sense would tell you the house was overpriced. My son had determined what he felt was a fair price for the home, based on other similar properties and work needed, all cosmetic but necessary because of the unusual color choices(think college team colors). The agent could not justify the asking price compared to the comps, just kept saying that is what the owners felt the home was worth. Unfortunately, if they are intent on selling, the owners don't get to decide what the home is worth to a buyer, the market does that! After several rounds of offer/counteroffers, they were 1.5% apart in price, my son had had enough and told the agent he was moving on. At that point, owners agreed to my son's offer and they went under contract. When the appraisal came back, the home appraised for $1,000 more the than the contract price, more than 10% less than the price the owners were adamant about! So even if they had sold at the higher price, the deal would have crumbled because of the appraisal.

If I were you, I would get an accurate appraisal of your home and price accordingly. The house is only worth what the market will bear and the appraisal will give you the information you need to price your home appropriately.

Ncrealestateguy-- have you in your career seen houses sell for more than you, or perhaps other realtors, anticipated? And thanks for the hobby encouragement-- we try to keep them constructively busy.

Rrah-- I do not know what the 'latest and greatest from hgtv' looks like as we don't have tv, but I do know that one of the most common comments we get is about how all of our updates and renovations have been in keeping with the style and look of the house. I go in for stained glass and wall alcoves, not wall words and faux finish paint jobs. I think our house looks like anthropologie had a baby with the historic district, but I'm biased.

Post some pics of the home. Those projects that still need finishing too. If you are in the process of finishing them, perhaps it's not too late to tailor them more to the old home market. Personally, glass tile in any bathroom in an historic home would be an immediate turn off. "Improvements" often tank the value of historic properties. "Restoration" never does.

I don't think that photos will really help answer my question though. And while glass tile might turn you off, we've been told time and time again that we spent money in all the right places and did all the right renovations. Here, houses were routinely denuded of anything resembling historical charm (as ours was, starting back in the depression) so it's more a question of adding charm back in and not restoring it, since it's not there anymore. We have not at all been slaves to accurate historical detail and I have no apology for that as it's not what people in this part of the country are looking for. I completely understand that this is not the case in all parts of the country.

When we moved in it was a nasty duplex with horrible flooring and gross apartment trim and 7 layers of wallpaper over the plank walls (starting with a fabric layer nailed up, ending up with an avocado and orange cornucopia motif). It was more of a rescue operation than a restoration. We did do many things to stay in keeping with it's original intent -- we replaced the '70s limestone fireplace with one of brick that matches nearby original brick, we put down the narrow hardwoods, etc. But if you'd rather, you can think of it simply as a pretty home with a colorful past in a highly desirable neighborhood.

BelfastBound-- Yes. it is fine to mail the items. Or you can even leave cards and flyers tucked in the door or on the doorstep. You just should not self-deliver in or on other people's mailboxes.
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Why do I keep picturing six children swamping a pony? lol I always wanted to own a horse growing up, but my parents and money were a problem. Eventually I talked them into allowing me to buy a donkey. Best $15 purchase ever! We had years of wonderful adventures together. :)

When we sold our house several years ago, we interviewed about 5 or 6 real estate agents, all of whom suggested, to us, very low listing prices. We ended up with the one who agreed to list it with the highest price. The house sold the first weekend at list price.
Friends had a very similar experience a few months ago: They insisted on a list price 200K above the realtor's suggested price, who BTW is a top grossing agent. The house sold within 3 days above list price after they had decided to only consider "cash" offers.
I've recently bought investment properties. Again, my impression was that agents are primarily interested in a fast sale, not the highest possible sales price. If you think about it: Their share of the commission on a price difference of 20K (280K vs 300K) comes to 600.00, so it makes sense to get a quick sale and get 8400.00 rather than wait and get 9000.00.

So, I'd suggest to try FSBO but not to assume that you will pocket the full 6% commission or whatever is customary in your area. My market is smoking hot, and I'd be happy to buy FSBO but have found that they are usually totally overpriced.

Gyr_falcon-- it's mainly our oldest, our only daughter who's 9, who wants the pony. But I imagine it will be overly loved :). Our sons old enough to understand what the talk is all about want bees, chickens, and a goat. I'd be happy to stick with our outdoor cat and bunny, but there you go :).

Nosoccermom-- thanks for the encouragement. The commission here is 5% so if a buyer brings an agent we expect to pay them 2.5%, which I'm fine with. I feel like it might not be totally unreasonable to hope to end with an accepted offer around 300k, which is only about 4% higher than the REA suggested, especially since we basically have no competition at the moment. If we were desperate to sell I might be thinking differently about it.

I sold my last home FSBO. I had appraisals from a few brokers and looked at homes in the area. It was hard work, lots of time sitting in an empty home (I had already moved and without furniture it was hard to visualize). I think you should de-clutter and try selling it yourself for 3 months. You have nothing to lose and maybe something to gain - someone who could afford your house but couldnt afford it if they had to pay a broker's commission.

This post was edited by zen4d on Mon, Jan 27, 14 at 22:50

I would definitely list it myself because we've done it in the past and I like that you have more control over the process. That being said, there's a reason that realtors make what they do--if they are good, they know neighborhoods, inventory, can resource, do paperwork that can be confusing, set up appointments etc. So you have to decide to commit to having another occupation for a while.

That being said, the best advice I can offer for FSBOs is to price it properly the FIRST time which includes letting the buyer see that you are offering your home at a discount because they know you don't have to pay a realtor.

The best marketing advice I have is something I read in a book on how to sell your home in a short period: Have an all day, 8 hour Open House on Saturday and Sunday. This will cut down dramatically on appointments to show. Remove all valuables and prescriptions drugs and let people look without a "tour". We stayed on our deck and left information on our kitchen counter for people to look at. We had our home inspection left out for them to look at and a copy of our appraisal. We knew the deck was the last stop for people viewing our home and after having time to discuss amongst themselves, they were usually chatty and very honest about if they were serious buyers or just nosy neighbors (not that we minded). All of our eventual buyers had previously been to the Open House. The serious ones came back that same day or weekend with other family members---this is where it was helpful for us to have our OH hours run until 6:00 PM.