If an agent promises they can sell your home for more money than any other house on the block, you should hire them right away, right?
Not so fast. Remember, a real estate agent's pitch is designed to get you excited to work with them. Read on to learn why you should be wary of pricing advice from agents looking to land a new client -- you!
When a realtor comes to your home to pitch their service to you, they know that by promising you they can sell your home for more than other agents are saying, they increase the odds of capturing your business. They also know that, statistically speaking, home owners overvalue their home by 8%. That's why getting pricing advice from an agent soliciting your services isn't necessarily the best move.
Agents generally quote a price to you on the high side of reasonable. Once you've agreed to work with an agent, you'll end up signing a listing agreement that locks you in for six months to a year. If buyer interest is lackluster during that time, the agent knows they can get you to lower your price. You often have no choice as the seller but to lower the price because you need to sell. So you get hurt as the seller while the agent still gets their commission.
Quoting a home seller a price that is on the high side of reasonable or beyond reasonable is a common occurrence in real estate. Agents refer to it as "buying a listing." Be very wary of it when you go to list your home. If you follow bad advice and overprice, statistics show you are likely to spend more time on the market and ultimately get a lower sales price.
Spencer Raskoff, the CEO of Zillow, wrote a book recently where he devoted one chapter to analyzing pricing. He cited the biggest mistake home sellers make is leaving room to negotiate. He writes that you should not price your home above the fair market value.
Understandably, most sellers are more afraid of underpricing than overpricing. After all, no one wants to sell his or her home for less than it's worth. Indeed, that's why some sellers purposely overprice. They assume that by listing high, they'll somehow drive up the sale price and net some extra cash. But in reality, this strategy almost always backfires.
Stats to Back it Up:
Raskoff uses Zillow statistics to demonstrate that overpricing almost always leads to a lower final sales price. His data analysis reveals that overpriced homes typically end up taking twice as long to sell as an accurately priced home. His stats also reveal that overpriced homes typically sell for 4% less money than accurately priced homes. Raskoff noted the closer one prices to fair market value, or even below fair market value (as is routinely done in the Bay Area), the higher the final sales price.
Our data sample is much smaller than Zillow's, but we've reached a similar conclusion. We've seen an underpricing strategy work well in many areas, including the Bay Area, where underpricing by the seller and overbidding by buyers is the norm. Banks always follow this approach when they sell homes in their portfolio, as do home flippers. We agree with Raskoff that resisting the urge to price high will help you get the best final sale price at closing.
Have questions about pricing tactics? Ask us!