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Shouldn’t I just price my home high, and see what happens?

Shouldn’t I just price my home high, and see what happens?

Sellers frequently ask: Does it makes sense to price my home higher than market value and plan on negotiating down? Even though this is a strong sellers’ market, I advise against this approach for a few reasons.

  • Buyers know this is a competitive market, and they are looking at homes on the low end of their price range: Buyers assume that they will be competing against other buyers in this hot market and need to be willing to bring an offer that is above list in situations of competitive bidding; therefore, they are seeking out listings that are below their max amount so they can leave a little wiggle room if they need to bid above list price.
  • Buyers are comparing your listing with other active listings: If buyers see your listing and another listing at the same price but the other listing has more square footage, more bedrooms and bathrooms, better parking, or better features, they will not take the time to step in the door of your property to even see if they would be willing to make an offer.
  • Lingering longer on the market is not good: In this market, if a home that should go under contract right away does not go under contract in a reasonable time period, buyers wonder what is wrong with it.  Stale listings are like stale bananas and buyers frequently won’t consider offering less, they just won’t offer anything at all … they move on to the next new listing.  There is no room to negotiate on an offer that never comes in.
  • You have to sell your house twice: The first person you sell the home to is the buyer, and the second is the lender.  The lender will likely order an appraisal to validate that the collateral for the loan is sufficient in the event that the buyer were to default on the loan. If the appraisal comes in below the purchase price – even if the purchase price is below list price – it opens the door for even further price negotiations. The seller is not forced to reduce the price to meet the appraisal, but the potential termination of the contract means the seller would need to start the process all over again, trying to find another buyer, and likely at a lower list price because the property has been on the market for so long. 
  • Appraisal gaps are limited: If a buyer loves a property enough to offer an above-list purchase price, they will frequently indicate in the offer that they are able to bring additional cash to the table if the property does not appraise for the full purchase price. There are limits on these appraisal gaps, however.  Buyers will sometimes guarantee a gap between the appraised value and the purchase price where the appraisal is at or above the list price, considered “full appraisal gap,” but will frequently not guarantee an amount below the list price.  The expectation is that there is some rational substantiation for the pricing and that the list price can be supported by comps that would be used for an appraisal.

Ultimately, sellers have the prerogative to determine where to list their homes, but the market, and current buyers in the market, will make the ultimate decision regarding what a home is worth during any given week. Buyers looking today may be the same or completely different from the buyers who were looking last week, last month, or last year.  Having a professional REALTOR help you price your home at the correct market price is key to getting your home sold in today’s market. Contact a REALTOR at Sears Real Estate today!

Submitted by:

Cathy Cowles
Broker Associate/Partner
Cell: 970-302-6623

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