Why it's risky to overprice your home

Pricing your home accurately is a critical factor to ensure a successful sale. While aiming for the highest possible price might seem like a logical strategy, there are some serious pitfalls to overpricing your home, especially within the current housing market.

"Buyer pools are tightening owing to high interest rates. This means that homes that aren't priced competitively are unlikely to sell unless their asking price is reduced or market conditions change - which is unlikely to happen anytime soon," warns Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.

He adds that inflating the asking price will lead to a range of complications that not only deter potential buyers but also prolong how long it will take to complete a successful sale. "It is important to understand these risks so that homeowners can make a more informed decision around the asking price that should hopefully lead to a smoother and more successful sales process," he notes.

When a home is priced significantly above its market value, Goslett explains that it discourages potential buyers from even considering it. "Most buyers begin their house hunt online. When searching for homes on property portals, buyers will search within a certain price range, and if your home is priced above that range, it will not show up in their search results," he explains.

This tends to mean that the home will stay on the market for a longer period. The longer the home is on the market, the more buyers tend to think that there is something wrong with the property, which will often lead to cheeky offers down the line because buyers will think that the seller must be feeling more desperate to sell after all this time.

SEE | The 4 best ways to find serious buyers for your home

Goslett explains that overpriced homes also lose their new-to-market appeal. "When a new listing hits the property portals, buyers who have set alerts for that suburb will login to see what's new to market. If the price is set too high, the seller is likely to miss out on some of this initial surge of potential buyers who are actively looking for new listings," says Goslett.

Buyers are also spoiled for choice at the moment, which means that they have plenty of options to compare in terms of value. "If your home is priced much higher than comparable properties with similar features and in the same neighbourhood, buyers are more likely to opt for those lower-priced alternatives," says Goslett.

Many sellers also assume that buyers will come in with offers lower than the asking price. The problem is that when the asking price is too high, Goslett notes that rather than encouraging negotiations, it deters serious buyers from even making an offer because they assume that the negotiations will not bring the price down to a reasonable level. "This limits a seller's chances of receiving any offers at all," he warns.

The key to avoid these downsides is to price the home correctly at the start. "Although it might not be what they want to hear, sellers need to be realistic about the current market conditions and lean on the advice of a trusted local real estate professional to make sure their home sells for full value," Goslett concludes.

Greg Dart, director of High Street Auctions, shared the importance of correct list pricing for successful property sales, below are some of the points he made in an article published in July. 

Pitfalls of Over-Pricing

Dart says in his experience, residential sellers overwhelmingly want to deliver their properties to people who'll love the space as much as they do.

"But setting a price point to attract only 'serious buyers' rather than a market-related price is thinking with your heart, not your head, and could scupper any chance of a sale."

Dart says sellers who over-price properties face:

Fewer Prospects: In today's competitive real estate market, buyers are well-informed and have access to extensive property data. Prospective buyers therefore know when properties are priced above market value and they don't like being taken for fools.

Lengthy Time on the Market: Online property portals allow buyers to quickly and efficiently compare local market stock. The longer a property sits unsold, the more potential buyers browsing for new listings will question its desirability or condition.

Discounting Negatives: If reality strikes when homes don't sell quickly and asking prices go down, owners risk creating an impression that they're desperate or lack confidence in their properties. Prospective buyers are likely to suspect there are any number of issues from structural to problem neighbours - perceptions that can be challenging to overcome even at more attractive prices.

Over-Exposure: Serious buyers frequently browse real estate websites for new listings, so a listing they've seen 20 times will be ignored. The longer an over-priced property remains on the market, the more stagnant it becomes. If your house has been on sale for ages without a nibble, take a step back and try to review the asking price from a financial and strategic perspective only. When you've revised the price, insist that your broker also completely revises the online listing with new visuals and a fresh property description that will bring previous browsers back to reconsider your sale.

Watch Auctions for True Market Pricing

Dart says property owners thinking of selling will find auction sale floors to be the most accurate barometer of market-driven real estate price points.

"Especially when the economy is tight, sellers (and buyers) rely even more on auctions because the mechanism of sale is crystal clear. Back-room deals can't happen; fair value is determined by one thing only - the market's appetite for the asset on the day.

"If owners want to price their properties to sell, professional real estate auctions will provide the market insight they need. Auctions are also much faster transactional platforms for liquidating fixed assets."

Additional information to consider: 

Cobus Odendaal, CEO of Lew Geffen Sotheby's International Realty in Johannesburg and Randburg, shared (Jan. 2023): "There are 11 key factors that influence your home valuation".

"It's critical to price your home correctly right from the beginning because when buyers have as much choice as they currently do, they generally prioritise value for money and, if yours is over-priced, they'll probably opt for a similar home at a better price".

"Additionally, if a buyer does make an offer, and the appraised value comes in significantly lower than the agreed-upon selling price, the bank could decline to provide the buyer a mortgage," he said.

Odendaal said that it's understandable that sellers often find it difficult to be objective about the value of their properties because, unlike other investments, people have both a financial and emotional stake in their homes, especially if they have lived there for a long time and have upgraded the property.

However, at the end of the day, your home's value is based on what buyers in the current market are willing pay, and this market value is also contingent on numerous key factors that will be taken into consideration by agents and appraisers.

https://www.property24.com/articles/why-its-risky-to-overprice-your-home/31851