Most people can fully understand the concept of losing money by under pricing their home, so let's focus this discussion on the opposite side of the equation. Few realize that over pricing can be a mysterious way to lose money. Likewise, many people do not understand how it can hurt them in the long run. Why would it? The buyer is always going to ask for a lower price, and once they do, you can always decide to lower it, right?
Well, while all of that is true, let's look at the figures. Oh yes! There is data kept on this very topic. According to Triangle MLS, the local multiple listing service used by real estate brokers in the Raleigh Durham market, the average price reduction as of February 2013 from the original list price to the sales price (not accounting for seller concessions) was 6.2%. However, the average price reduction, as of the same time period, from the last list price to the sales price (not accounting for seller concessions) was 3.4% .
Unfortunately, there is no definitive data that shows exactly why there is such a difference in the price between the original and last list price. We're sure some of the difference is due to the original price being set too far over the true value of the home. However, we are also just as sure that some of the over pricing, actually leads to a reduced sales price in the end. Take for example one of our recent purchases on Sunningdale Way in Durham.
The sellers had originally put this home on the market on 11/06/2008 for $263,700. Then on 6/29/10 (yes. . . almost two years later) their agent talked them into increasing the list price to $267,000. However, over the next 125 days, they reduced the price to $239,900. Then on 1/11/2011, they decided to list the house with another real estate agent who put the house on the market for $234,900. Sadly though, after another 59 days on the market, and no viable offers presented, they decided to put the house up for rent. Needless to say, they just couldn't take making any more mortgage payments on a house they didn't live in any more.
So on 3/11/2011, they rented the house out to try and cover the mortgage payment. After the year passed, the tenants moved out, and they were faced with making a decision on whether to rent the house again, or put the house back on the market.
It was at this point that the pressure really started to build, because they wanted to move out of state for a new job opportunity. This, combined with the landlord experience they had just gone through, made for a quick decision. Likewise, they put the house back on the market on 3/1/2012 for $245,000.
Then on 6/13/2012, they lowered the price to $217,900 as they were leaving town in their moving van. Luckily for them, they happened to past a yard sign for Tarheel Property Solutions. Once the road trip reached Charleston, West Virginia, they decided to give us a call. Within two weeks, we purchased their house and removed the burden from their shoulders.
Now that's a long story to tell, but we felt you needed to see all the price changes. Because, some will chalk this example up to one of the worst declines in market history for the same time period. However, we think you should also know a few more things. According to Triangle MLS, during the same time period from when the house was originally listed to when it was rented out, 398 - Three Hundred & Ninety Eight homes were sold in the in the same city limits and within 100 square feet of the size of their house. Needless to say, every price drop was still above the true value of the house at that point in time.
So be careful when it comes to determining a price you want to place on your home. Our emotions can play tricks on us. Likewise, we can be lead to believe our home is worth more than it really is to the average home buyer.
Oh. . . and one last thing you may want to know about our sellers on Sunningdale Way. They found out the hard way that once a house has been on the market for an extended period of time, people get nervous about buying it. Therefore, even if you finally get the price right, you may still have to go lower to overcome their nervousness. Why do we say this? Because these folks had over 97 showings once they finally got the price right, but not one single offer, until ours.
So how can you tell what your house is really worth in order to set the price right from the beginning? Click here to see some great suggestions.
Selling Your Home
