The perils of overpricing
Here's a lesson for anyone tempted to get greedy with the listing price of their home.
Building in a big premium, far from guaranteeing a nice gain at the end of the day, instead may be a ticket to multiple price reductions. And when you do sell, you could wind up parting with your house at a sizable discount.
Certainly that's what many frustrated sellers and their agents are discovering as homes come on the market at lofty prices, only to die a death of a thousand price cuts.
And as it turns out, there is academic research out there to back up this up as well.
Consider a little known - in consumer circles anyway - study from 2002.
Kudos to Professor Ken H. Johnson of Florida International University for digging up this dusty jewel.
Writes Johnson in his real estate blog:
The findings from this research (by Professor John R. Knight of the University of the Pacific) indicate that, on average, properties which experience a listing price change take longer to sell and suffer a price discount greater than similar properties. Furthermore, bigger price changes are found to experience even longer marketing times and greater price discounts. Finally, as for which properties are most likely to experience a price change, Knight finds that the greater the initial markup, the higher the likelihood that any given property will experience a listing price change.
So what's the takeaway here? In his own research, Professor Johnson notes that price changes, whether up or down, tend to be counterproductive, leading to more time on the market and ultimately lower sale prices.
Here's Johnson again.
Therefore, get the price right from the beginning. It is best for all.
