Overpricing 101 for sellers
The most successful sellers price their house near market value and draw buyers who know the market and are ready to buy. Sellers who overprice see their property stuck on the market longer and frequently sell for less than they may have.
Here’s what happens:
Suppose there are five Cape Cod houses for sale in roughly the same size, location, and condition. They are priced $349,000, $354,000, $359,000, $369,000 and $385,000. The market value of these hypothetical houses are all close to $350,000-$355,000.
People who are shopping in the $300,000-$350,000 range will see two or three of them.
Shoppers in the $350,000-$400,000 range may see most of them. Those buyers will think they are overpriced or just hate them because they aren’t as nice as properties that are really worth $360-400,000. The most likely thing these buyers will remember is why the Cape wasn’t as nice as the other houses they saw that day. Many will rule the Cape out, even though it is a nice house in the $350,000-$355,000 range.
Sellers who overprice their house think they are “anchoring” the price at a higher point. I frequently hear things like, “We started at $385,000, so we think it is a great deal now at $365,000.” In my experience, buyers don’t buy it. The answer is obvious to me, “Mr. Seller’s agent, the buying public have made it clear in the past 30 days that $365,000 is not a great deal for this house.” Sellers who stick with their $365,000 price tag will wait a long time, in this market, for someone to come and overpay.
Meanwhile, the sellers who priced the similar house at $349,000-$359,000 drew offers in a week. Some will wonder if they should have priced it higher. Seller’s remorse sets in if a house sells too fast. Even if the house sells nominally over asking, sellers will wonder if they should have started higher. In some cases, they do undersell. In others, they did the right thing. This is a place where, as a seller, you need information you can trust about pricing.
The “anchoring” that hurts sellers the most is when the seller has the peak price estimate for their house in mind when they go to sell. Someone whose house appraised for $410,000 in 2006 may anchor there. Then, they’ll feel ripped off when they sell in 2011 for $355,000. This is so even if they bought it for $215,000 in 1996. The loss looms bigger than the profit.
Has anchoring influenced you as a seller? Have you sold and felt you underpriced or overpriced your place?
