Effects of Overpricing Your Home
When selling your house in Ottawa pricing it correctly counts as much 80% of marketing the home. Overpricing your home has major consequences as it sends not only the wrong message. It will actually help other homes sell while keeping your house on the market.
Keep in mind: No amount of advertising, open houses, exposure will sell an overpriced home.
Use another product as an example. Take a small, economy car and park it next to a full size luxury car of the same age and condition. Yes, they are both similar in having the same function and components. Yet the two have very different price tags. You will never get a car buyer to pay the $100,000 price for a car that has a market value of $25,000.
Properties are no different than other products on the free market. You will not sell a $350,000 Ottawa town home for $600,000.
Do not forget: Buyers have access to the same information as sellers. They are not naive and likely have a real estate agent advising them on market value. Buyers today aremore empowered than ever with access to information about Ottawa real estate on the internet.
MAIN REASONS SELLERS OVER PRICE THEIR HOMES
For most home sellers their property is their pide and joy. It is the most valuable thing they have. Emotions are extremely important when it comes to selling and putting a price not only to the structure. Memories, updates, renovations and the community all factor in the “price” sellers want for their home. For many the home is their most priced possession. Emotions however,can lead to overpricing your home. Almost every home seller wants to believe their home is worth more than the similar homes in their area. They will find any means to justify a higher price even when facts do not support this.
- Over improvement – The home owner has spent way too much money personalizing their house to their taste. When it comes time to sell they want to recoup every dollar they spent. Often, sellers want to make a profit on some improvements. I always recommend talk to your Ottawa REALTOR before spending any money on renovations. Seller must have a clear picture of how upgrades and renovations will effect the market value. Very few renovations will recoup dollar for dollar on resale.
- Need More Money for Your Next Purchase – Your next purchase, or any plans you may have after selling your property has absolutely no impact on the market value of your property. Your home will sell for what buyers will pay for it. Period.
- Being uneducated about the Ottawa real estate market – Often home sellers listen to anyone with an opinion about prices. And actively looking for people who simply agree with what the sellers wishes can lead to horribly mispricing the property. Your neighbour would love you to sell your home for more than its worth. After all this would increase the value of his/her home. Your dad, mom, friend will likely support whatever your hope the home is worth. But at the end of the day it is all about the data. What have similar properties sold for in the immediate area recently?
- Leave Bargaining Room – Many home sellers believe that pricing the property higher than similar homes will leave bargaining room. They think it would allow them to negotiate from a position of strength with buyers. In effect the opposite happens. Overpriced properties either receive no offers at all or they get low ball offers.
- Online “auto” estimates – Online automated home value estimates provide nothing but a very approximate idea of a property’s market value. These types of estimates cannot factor in some of the most important factors such as condition, updates, curb appeal etc.
THIS IS WHAT TAKES PLACE WHEN YOU INSIST ON LISTING AN OVERPRICED HOME
Your new listing comes onto the market. There will be some interest in the first week or so. The most motivated and financially ready buyers may even ask for a showing. While a well priced home in most Ottawa neighbourhoods should get at least 3-4 showings per week or more, an overpriced home will only interest a few buyers.
The first open house will probably be busy. That generally does not mean they are ready to buy. Most visitors are simply looking around, basically the real estate equivalent of “browsing”.
After the first week or two showings will all but stop. And those buyers who came to see your home during the first week? They were the best buyers you just missed. They were the buyers with money who are looking for new listings. They moved on.
You will become irritated with your real estate agent. Why is he not doing more marketing, more ads, more open houses? Does he not trying to sell your home after all?
The Internet and buyer behaviour
Here is the brutal reality: In today’s connected world your house is being rejected on a daily basis by home buyers on the internet. Buyers don’t look in newspapers anymore. They throw out most flyers. If a buyer is interested they call their agent and schedule a showing based upon what they see on the internet about your home. It is that simple.
Time goes by. Your listing stays on the Ottawa MLS system for longer than the average home for sale. Now you are approaching 100 days on the market. Your house should never sit on the market that long. It is unsold without a change in price, without new upgrades and an exhausted marketing campaign. But you still think you have a Lexus when you really own a small economy car.
Buyers reject price not property
Basically the market (the buyers) rejected your price. Not the home. They would love to offer you a fair price. But very few buyers will bother to offer on an overpriced property.
Eventually your house expires on the MLS and you have a decision to make. Fire your agent and relist again with the same price. Or learn about the market conditions and determine a price that will cause the home to sell. You cannot fool the market.
Few things are more disastrous than not selling your home. All your hopes and plans have to be put on hold until you regroup and figure out what to do next. You lost all the time and energy you put into listing your home and stress levels running high when the buyers aren’t coming or putting in offers.
SO WHY DO NOT BUYERS JUST PUT IN AN OFFER ANYWAYS EVEN IF MY HOME IS OVERPRICED?
This line of thought is still defending a failed strategy of mispricing the home. It does not matter how much you spent on your kitchen or deck 10 years ago. You will not recoup that investment.
You begin to think maybe your overpriced your property somewhat, so you tell the realtor to get the buyers just put in an offer.
Yet the offers never come. Why? If you are moderately to seriously overpriced your home is not even being viewed by the actual buyers looking for that type of property. Your house appears in a higher price range. So it is being searched and viewed by buyers that have more money to spend and your house does not stand up to the competition in that price range. It is probably not even seen by buyers looking for that type of home.
How buyers look for homes
A buyer looking for 3 bedroom suburban town home in Ottawa will cap their price range at let’s say $400k. Anything above is single home territory. So who will actually see ANY town home priced about $400K? Only buyers who are after single homes.
The Ottawa Real estate board statistics show most homes that are sold sell for with in 1% to 3% of the asking price. Buyers and buyers agents are not going to waste time looking in a price range that home buyers cannot afford.
Remember that you have no control over the buyer’s decision. Yes, there are ways to influence them, such as making your home more attractive, offer flexible closing dates etc. But the only way to effectively control their thought process is offering them a good value.
BUYERS ARE NOT PUTTING IN OFFERS FOR VARIOUS REASONS ON YOUR OVERPRICED PROPERTY
Even if you do get some home buyers that are potential buyers for your home this is why they wont put in offers.
- Home Buyers do not want to offend the seller by giving you a low ball offer. You picked the listing price so they believe you believe it is worth that much. Most don’t even want to bother trying.
- Home buyers are emotional. Buyers do not want to get “emotionally involved” in negotiating when they think will not have a good outcome for them. They have to believe they can be successful buying the home.
- As per above before your property is not even being marketed to the right buyers. Take that 550k home price it at 650k and it will be in an entirely different segment. You are trying to sell your home to people who can afford 700k but your house is lacking compared to the other offerings in that price range.
- Around (at most) the 100 days mark on the market you hit a critical point. Your listing will develop a stigma. Agents and buyers alike will keep asking the same question: “What is wrong with that home not selling?” They think something is wrong because no one else wants your house.
THE REALITY OF OVERPRICING YOUR HOME
There are many downsides to overpricing your property.
- Your home expires on the market unsold. This hurts especially if you have plans to move on.
- Inconvenience. Selling your home is a lot of work and inconvenient. Weeks after weeks of showing and keeping your house in tip top showing condition is tiresome.
- Stress. There is nothing more stressful than not selling your home. It is common to be very optimistic in the beginning. Then as time goes on frustration creeps in and making a rational decision will be more difficult.
- Your home will not appraise. With the new mortgage rules lender use much stricter criteria. It is not enough for the buyers to qualify for the loan. The property has to qualify as well. Even if you receive an offer, the appraiser will red flag it if the sale price cannot be supported by the market.
- Low ballers. The buyers that may bring you an offer will likely be investors and flippers. They will bring low ball offers as they know you are probably stressed and want to just sell at this point. Do not let them take advantage of your frustration and stress.
HOW DO YOU GET THE MOST MONEY WHILE AVOIDING OVERPRICING YOUR HOME?
Use recent comparables and discuss market value trends with your Realtor. Price you home at market based on comparable properties that have sold. Use the following factors to adjust the price if necessary:
- Location- Obviously you must compare with homes in the same general area. The banks look closely at this on appraisals. In Ottawa, there are areas where even a few hundred metres make a difference in market value.
- Size/living space- The comparables should be within 20%- 25% larger or smaller. If you have a 2000 sq foot town home comparable properties should be no more than 1500-2500 square feet town homes. Banks use this very strictly.
- When the house sold. Comparables should be as recent as possible. This can be within 3 months in suburbs with many similar homes and models. In other areas use comparables within 6 months or a year. Use only sold homes.
- Room, bedroom and bath count- Ideally the comparables should have the same number of bedrooms, baths, garage count or at least very close.
- Style- You should try and compare bungalows to bungalows, end units towns with end units etc.
- Age- Age can be a secondary factor in many Ottawa neighbourhoods. There are many well maintained older homes selling for more than some newer homes.
- Condition- Condition is a huge factor. Recent and quality upgrades definitely add value although as discussed earlier you may not recoup all the expenses.
- Features and Amenities- Features and amenities like master suite with a master bath, central air, patios, decks, finished basements, etc. can play a role in market value.
This is a only a rough guideline for pricing a home to sell. Obviously homes are all unique, some more than others. Your agent should have a good handle on all what goes into pricing your home for your area. They should be able to explain pricing concept and the local real estate market to you.
The banks have strict guidelines for location, square footage and age of the comparable homes. If an appraiser goes outside of the guidelines they need to have a very good explanation. So should your agent.
Pricing your home properly for the current real estate conditions is the most critical component of selling your home. It is a decision that should not be taken lightly and as a homeowner you should take the time to understand how and why an agent is recommending a price on your home. Statistically the quicker you sell your home the more money you will get on the sale of your home.
Remember, every house is sale able for the right price, in any market. Hire a REALTOR with a good reputation. Contact me with any questions on pricing your home to sell.
Real Estate Services in the following areas: Ottawa, Barrhaven, Kanata, Stittsville, Orleans, Nepean