The Goldilocks Approach to Pricing: Not Too High, Not Too Low—Just Right

As a rule, people who sell their real estate holdings want to receive top dollar, whether it’s a family residence or a commercial building. The challenge is how to price a property to sell relatively quickly without undervaluing it.

Ultimately, the market will determine the value of a property, and the market is fluid. Value is based on what buyers will pay the day they look at a house, and unfortunately for you, the seller, buyers do not take into consideration what you think the property is worth or the amount of money you need to get out of it.

A common misconception when determining a property’s listing price is the belief that it is okay to start too high, figuring you can always come down. Overpricing a home is risky and can ultimately result in it selling for lower than fair market value.

Most people fail to realize that there are a limited number of buyers looking for houses in a given price range at any one time. Serious buyers often have a sense of urgency, so when a new property goes up for sale, all those looking for a home in that price range will probably see the property within a week or two.

If your home is overpriced and no one makes an offer during the first few months, what can you do? One option is to wait for more buyers to enter the market. This can be a slow process and your home will become less appealing as its days on the market pile up. Your property will be viewed as a stale listing and people will begin to wonder what’s wrong with it.

Another option is to lower the price in hopes of recapturing the attention of the buyers who have already seen your home and think it is overpriced. The problem with this approach is that most buyers pay more attention to new homes coming on the market than to the homes with price reductions. Even real estate professionals can miss price reductions that make a property a great deal. Once a listing gets a reputation as overpriced, even after months of lowering the price, it can simply be overlooked.

Prior to 2007 (before the real estate crash) most buyers got pre-qualified for the biggest loan they could and set that as their target price for purchasing a home. In today’s market, many buyers take a more conservative approach. They base their price range on their own comfort zone, not necessarily what they are pre-qualified for. If they are getting a loan (as almost everyone does), their lender will order an independent appraisal to confirm the home’s fair market value. Before a lender is ever involved, buyers often research home prices on the Internet to make sure they are not overpaying. Regardless of how much you paid for your home and regardless of how much you’d like to receive for it, buyers will not pay more than fair market value.

What you can control is how attractive your house is the moment it hits the market and makes its first impression on buyers ready to make offers. Pricing will determine the number of buyers who look at the house and ultimately whether or not they choose to make an offer.

On the bright side, the market will rarely allow you to under price your home. If buyers feel your price is too low, you will receive multiple offers. The market will push your price to the highest price the market will bear. So let go of the idea that overpricing is a good strategy—that it will allow you to see if anyone will bite. It isn’t and it won’t.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

One thought on “The Goldilocks Approach to Pricing: Not Too High, Not Too Low—Just Right”

  1. I’m so grateful to live in california. According to someone from http://www.buynewhomeorangecounty.com/ The housing market might stagnate this year in the region tho ;/

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