Don’t Be Guilty of Pricing Your Home Too High
It’s already been said, however, I think it is worth stating again that the market has shifted. It’s important to keep this in mind when pricing your home to sell because if you don’t this could cost you both time and money.
In fact, the market continues to shift. Anything that is related to the real estate market that changes has the potential to influence how much you can sell your home for and how long it might take to sell it.
We all know that mortgage interest rates continue to move upward. In the first part of this year interest rates were increased to help fight inflation.
Because they are not happy with the results of the economy so far, the Federal Reserve continues to increase rates. This does not bode well with the real estate market because it affects the house payments that consumers pay.
As interest rates increase so do house payments. The higher payments climb the more people are left out of being able to purchase a home.
This smaller pool of buyers decreases the demand on the existing inventory of homes and this results in homes selling for less than the asking price and taking longer to sell. This is the exact opposite of what has been occurring since the pandemic.
Interest rates were dropped shortly after the pandemic was announced, which sparked a frenzy of buyer activity because of the lower mortgage payments. This is the exact opposite of what is happening right now.
So what does all of this have to do with pricing your home too high? A lot! It’s important to price your home according to what is going on currently.
Some sellers are living in the pre-interest rate shift era that occurred in the first half of this year when they should be living in the present. By this, I mean that they should be pricing their home for sale based on current economic conditions.
Today I’m going to share some practical things to consider so that you don’t price your home too high.
5 Things To Consider When Pricing Your Home
1) What have other similar homes recently sold for? What we are talking about here are the comps. The important thing to remember, as I stated above, is to consider
the sales that reflect what is happening in the current economic climate.
Practically speaking this means using sales that occurred AFTER interest rates started to increase. This will show you how buyers reacted to the increase in rates and the increase in mortgage payments.
Using sales from last year or before the increase could possibly give you a different value result. If there are no recent sales in the immediate subdivision or neighborhood then it may be necessary to expand your search parameters to other similar areas.
While looking for sales outside of the immediate area is not ideal it is preferable to using older sales that may not reflect the current market. As long as you stay within the same competitive market area the recent sales you find should be sufficient to reflect current home prices.
2) What are other similar homes currently listed for? After considering recent closed sales your next step should be to look at how much other similar homes are being listed for. This is your competition and will be what potential buyers will be comparing your home too.
It’s important to keep in mind the principle of substitution here. What this means is that a buyer will not pay more for a house than they would have to pay for an equally desirable and available substitute property. If a buyer had the choice of three very similar houses available to purchase they will not choose the one that is priced significantly higher than the other two.
If your home is priced higher there will need to be a tangible reason for this. Many times there will be confusion about the square footage in a home.
The gross living area (square footage) of a home is typically the biggest factor in a home’s price. If you think your home is larger or smaller than it actually is this could result in inaccurate pricing.
This is why a pre-listing appraisal is so important. The appraiser can accurately measure your house and then compare it to the sales much more efficiently than you can because they have access to more information than is available to the average person.
The pre-listing appraisal will price your home to the market and decrease the likelihood that there will be a big discrepancy between the contract price and appraisal value when it goes under contract.
3) How long have other listings been on the market? The days on market (DOM) stat can provide you with a lot of helpful insight when pricing a home. The DOM of a listing will be longer if it is priced too high.
If you look at the DOM of closed sales you can get a good idea that the home was priced accurately and to the market. This can then be compared to current listings to get some context about what your list price should be.
If an active listing is on the market for longer than typical, as compared to recently closed sales, then you could ascertain that the listing is priced too high. You can then price your home accordingly.
4) What type of condition and appeal does your house have compared to others? When pricing your home it is important to remove all emotional ties to your property and look at it through the eyes of a potential buyer. This is the only way you can get an accurate idea of how your home compares to others.
If you are wearing your proud homeowner hat you may unrealistically believe that your home has much better appeal and is in much better condition than closed sales and active listings. If this happens you can easily price your home too high and have a hard time selling.
Remember, this is not the same market we had from 2020 through the beginning of this year. The sizzle of the past two years is starting to cool off and fewer buyers are paying over the list price and there are fewer buyers to look at your home because many have stopped shopping due to higher interest rates and mortgage payments.
The more realistic you are about how your home’s condition and appeal compared to others the more likely you are to price your home at a competitive price.
5) How much activity has your listing generated? Lastly, I would like to discuss the amount of activity you have had. This could come in the form of foot traffic when buyers visit your home, website traffic for those viewing your home online, or even phone calls from people asking for more information about your house.
If you have your home listed and the traffic from these different sources has been slow this could be a sign that you’ve priced your home too high. Today’s buyers are smarter than they use to be and they do their homework.
Buyers have at their disposal a lot more information than those in the past. They will compare your home to other closed sales in the neighborhood as well as what else is available for sale with just a click of a mouse.
If you don’t do your homework at least as good as they do current-day buyers will pass your home up for those that are priced to the market. It’s important to get it right the first time because it is a well-known fact that pricing too high and then dropping the price will typically result in longer marketing time and a lower final sale price than what you could have gotten pricing more accurately from the start.
Conclusion
So there you have it. An appraiser’s thoughts on pricing your home too high in today’s market. Make sure you price it right from the start so that you can sell it in the least amount of time for the highest price. If you have any questions about pricing your home or if you want to leave a comment you can do so below. As always thanks for reading.
Great Article. There are a lot less buyers, The rate is horrible.
Thanks. I agree, as rates increase they are killing the real estate market.
It’s no joke about a smaller pool of buyers today. And considering rate increases really take affordability out of the market, sellers need to be aggressive about pricing it right.
I totally agree, Ryan. Once rate changes started affecting everyone’s wallets we started seeing tangible evidence of what was happening in the market.