Sellers Overpricing Their Home
- Adam Garrett
- Aug 4, 2023
- 6 min read
Updated: Nov 18, 2024
Image Courtesy Chuck Dunlap
In this article, I wanted to go over in more depth sellers overpricing their home.
1. Higher market time diminishes perceived value by buyers and appraisers.
When I first got into the business, my broker gave me an informational packet that has been helpful with assisting sellers with understanding about the home selling process. Here is a segment from the top of the first page:
The "Brown Banana" analogy in the packet was particularly memorable:
Image & text in picture above courtesy Chuck Dunlap
2. A Real Estate Agent's Mutual Goal with Sellers Based on % Commission Especially Is Highest Net Price.
As long as you are paying your listing agent a % of the sales price, top dollar means they get a higher $ amount of commission, and they have financial incentives as well as fiduciary duties that are strong pulls toward you getting the highest price sale that you can.
For those who pay a flat fee to agents, & for heavily discounted listing agents, there is much less incentive to achieve highest net. In order for a heavily discounted agent to operate, they need to do much more volume than other agents, so in order to accomplish that, they need to cut many corners in the process.
3. Some Agents Will Intentionally Not Share Suggested Improvements with Sellers, Reducing The Seller's Net.
If an agent is actually honest with you, sharing with you cost-effective means of improving your net profits, then there is virtually no advantage to them to sell your home for anything less than top dollar in a real estate market with low median market time like we're experiencing at the time of this publication (12 days for June 2023 for single-family detached homes in REIN MLS, the primary MLS of Hampton Roads).
Some real estate agents forsake their fiduciary duties in telling you how to get higher net for getting top dollar in preference to:
1. expedience
2. ease of sale
3. higher probability that sellers will choose an agent who seems more "enthusiastic" than realistic
Related:
Why Buyers & Sellers Often Choose Not to Work with Honest Real Estate Agents & How To Avoid That
4. How Much Money You Put Into Your Home Doesn't Determine Value, But May Determine If you Sell or Not If You Might Take a Loss if You Sold It for What It's Worth.
How much money you owe on your home & how much money you invested into improvements/repairs is a significant factor when determining whether you should sell or not, but should not be a significant factor with how you price your home unless you are very close to the threshold of taking a loss.
5. If You Put in Too Much Money to Avoid a Loss, Consider Alternatives to Selling.
If you put in too much money in your house to avoid a loss, you should have fallback options in the event that the property doesn't sell & you can't afford a loss (i.e. renting it out), especially if:
If you have it listed for significantly longer than the median market time for your area (i.e. 12 days in Hampton Roads for June 2023's median market time for detached homes)
If homes are not expected to appreciate substantively in the near future (with homes typically appreciating the most between January-June in Hampton Roads) & depreciating the most between June-January)
Options if you would take a loss sometimes include:
Remaining in the property
Renting out the home (advice)
Making cost-effective improvements to the property to avoid a net loss, especially if substantial repairs are obvious with the home &/or would prevent a typical mortgage
Changing real estate agents if you find out that you signed up with a deadbeat agent with poor marketing (i.e. no professional photography, not having >80% MLS coverage, bare minimum listing input, unresponsive agent to showing inquiries, etc.) - Related: Showingtime
Related:
1. Financing Repairs/Renovations Prior to Sale
2. Non-Profit & Government Assistance with Home Repairs
3. Where to Find Equipment To Borrow/Lease/Purchase for Your Property Repairs/Reno/Cleaning
6. Some Agents Won't Work with You if You Won't Agree to Their Suggested Price.
Some listing agents won't even work with you if you have unrealistic expectations about your desired sales price of your real estate property & are unwilling to come down to a reasonable list price right out the gate. If they do work with someone that allows for listing prices at unrealistic expectations, it can hurt the agents' reputation and it can hurt their metrics when new sellers are interviewing them and wondering why their contract prices are so much lower than their list prices. For agents who have a stricter policy about being unwilling to work with sellers who have unrealistic notions of price, their metrics look a lot better when it comes to list price vs sales price than those agents who have a looser policy. That 1 metric is oftentimes a significant determining factor in choosing who you are going to list with and sellers typically don't care about this policy because they are relying on a list of questions from someone who isn't mentioning anything about the impact of this policy on this metric.
Related:
What to Look for in a Listing Agent for Your Home or Other Real Estate
7. If Your Home Is Listed Too High, Don't Take Too Long to Drop the Price.
If the market time is short (i.e. 2 weeks) and it's been 2 weeks or a month after the home was listed, consider reducing price in increments of 2 weeks or a month. It's important to do so substantively (i.e. 3%) for it to make a real difference.
Here is the median market time in Hampton Roads at the moment.
8. Adam's Double Appraisal Guarantee
If a seller has a >5% higher price in their mind than Adam's suggested range of value, and Adam is convinced that a seller is thinking too highly of a property, the seller has the opportunity to buy an appraisal from a licensed appraiser. If the property then sells for >5% higher than the top of Adam's range without any additional improvements (including but not limited to cleaning, with any appreciation factored into the equation if market appreciation occurs since Adam's analysis of value) within double the median market time of an area, Adam will reimburse the seller after closing as a rebate up to $600 for whatever the cost of the appraisal was, and provide an additional 100% $ rebate of the appraisal's cost to the seller, up to an additional $600.
9. Season Impacts List Price, & It's Especially Important to not Overprice Your Home in a Seasonally Depreciating Market
While projections vary on a macro level as far as where the market is going, on a micro level, whether the macro market is going up or down year over year, there are seasonal trends that tend to stay the same. One of the most significant trends is prices in Hampton Roads trending upward from January-June (from primarily contracts ratified the month prior in each case since most contracts take 25 days or more) and downward from June-December. If you find that you're overpriced during June-November, it's especially important to knock the price down expeditiously if you're not selling in a timely manner according to median market time.
Related:
10. Ruling Out an Agent Over List Price Differences is Typically a Bad Idea
Should You Rule Out an Agent Over Suggested List Price Differences? While I go into more detail in an article on the subject, essentially, many sellers shoot themselves in the foot by rejecting a listing agent for the very honesty that they actually should want. Instead, many sellers hire dishonest agents who:
1. tell them what they want to hear often
2. is generally more "agreeable"
3. puts off the vibe that they are more "excited" about the home whether or not the marketing of their past 5 sales demonstrates that they would do a better job than the honest agent effectively conveying that excitement to potential buyers.
Related:
Should You Rule Out an Agent Over Suggested List Price Differences?
The Importance of Listening to Agent/Buyer Feedback About Improvements Including After Going on Market
Especially with feedback that wouldn't be a high cost to address & that your listing agent suggests, whether or not you take their advice could impact whether or not your home sells and the amount that it sells for. Even high-cost suggestions could be well worth it vs the alternative, especially if those suggestions would impact whether or not the home would be eligible for a traditional mortgage rather than a fixer-upper loan or a mortgage with an escrow holdback.
If your home gets on the market and you keep hearing the same thing from buyers, and your agent suggests that you do something about it, the speed with which you heed that advice could also impact your market time & eventual price.
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