Following a recent listing appointment, I was asked, “If this is a seller’s market, why don’t we list $20,000 above market value and see what happens?”
Believe me, if I thought we could get $20,000 above market value on any of my listings, I would go for it! After all, the more money you sell your home for, the more we both get paid!
To help explain why this is not in your best interest to get the top price, I’ll use a couple of charts below.
One thing to keep in mind is that when your home is first listed is when it gets the most activity (showings). As days and weeks go by, you can expect the activity to subside.
You do get a small increase in activity after each price break, but it won’t match that first week or two. Because of this, we want to maximize our chances at getting an offer (ideally, multiple offers) during that first week or two.
Let’s say we price it at $270,000, but the market value (what the comparable homes are selling for) is somewhere around $250,000. We may get five showings that first week, three the second. These buyers know the market and have seen other homes priced at $270,000. They’ll recognize that your home is overpriced and move along. As the days on the market creep up in numbers, the less activity you will get. At around 30 days is usually when we start talking about price breaks in today’s market, and let’s say we reduce the price to $260,000 after 30 days. We then may get four showings the first week, then two the second. Again, buyers are aware of the market in this price range and feel it’s overpriced. Another 30 days go by and we hit the $250,000 price point. By now, it’s been on the market for 60 days. Buyers that see this often think that something’s wrong with the home. They also see that you’ve made two price reductions so assume you are desperate. You then get offers, but they are low ball offers. Offers like $20,000 below what you’re asking. You then begin thinking, “well, this is the best we’ve gotten, so we should try negotiating.” You then end up selling for the home for less than market value. Here’s a chart that may better illustrate the scenario:
Long story short, we want offers (plural) as quickly as possible. If we price at market value, get a ton of interest, and end up getting multiple offers, these multiple offers drive up the price. Now, this doesn’t always happen, but this is what we try to work towards. Since “Days on Market” are our enemy, I like to do a “Coming Soon” campaign which drives up demand before listing in the MLS. There are many details that have made past “Coming Soon” campaigns ridiculously successful, so contact me for more info!
Another thing to consider is the appraisal process. Since most real estate transactions involve a loan, the lender will only lend an amount up to the appraised price. What happens if the appraised value comes in lower than the agreed upon sales price? Some appraisers will make things work if you’re within $10,000 of the value. For example, if we get multiple offers driving the price up to $255,000, some appraisers will work the numbers enough to make the value come out okay (some won’t, however, so keep that in mind!). Part of my job as your Realtor is to provide the appraiser with comparable homes that I found to justify the price, explain the activity the home received (if multiple offers, that helps our case!), benefits of the neighborhood, home improvements made since you purchased the home, and any and all amenities that justify the price.
The closer you price to market value, the more money you can expect from the sale!