It can be intimidating to price your home, but there's no reason to spend too much time worrying about the long-term implications of your initial price. This post explains why.Today, almost all serious buyers are signed up for alerts when new properties come on market that match their price, bedroom and location parameters. Within the first couple weeks you list, almost all serious buyers looking for properties in your area will see your house for sale, make appointments and potentially make offers. Or, they will decide not to see your house.
Pricing Strategy Overview:
If showings and offers are low in the first few weeks your home is on the market, you very likely overpriced your home. There is no big harm if you immediately make an adjustment and move on. Lower your price until you have many showings and offers.
By contrast, as Zillow CEO Spencer Raskoff notes in "The Price is Right," a chapter in his book Zillow Talk, if you price low you will receive multiple offers and overbidding. So there is no harm from pricing low, either.
Raskoff goes a step further and uses Zillow statistics to demonstrate that you should be more afraid of pricing high than low, though almost all sellers mistakenly fear pricing low rather than high. Home flippers and banks don't make this mistake. They purposely price low.
In other words, "leave room to negotiate" is the norm for all but the pros, and it tends to lead to a lower final sales price, not a higher one. Keep in mind that other than Core Logic, Zillow has more real estate data than any other US company. So Zillow's data is worth hearing.
The One Mistake You Can Make:
If there is no big harm from pricing high or low, where is the harm? The real mistake you can make is to both:
- Price too high; and
- Remain static at the too high price
As Mr. Raskoff notes in Zillow Talk, if you price high and sit at the too high price, you likely will suffer from a sales price that is less than fair market value. The only buyers you will attract are those who aren't afraid to submit "low" offers on overpriced homes, and those buyers tend to drive the toughest bargains. In this circumstance, your final sales price is likely to be approximately 4% less than the value you would have otherwise received.
The Bay Area Model:
In the San Francisco Bay Area, we typically see great results for sellers who price 10% or more beneath fair market value. For example, this condo in San Mateo was priced at $599,000 and sold for $740,00. Such sales are very common in the Bay Area, where the common strategy is to underprice.
Bay Area sellers, like flippers and banks, tend to do better than the average home seller who is fixated on not leaving money on the table from their sale. As Mr. Raskoff notes, sellers should be more afraid of overpricing than underpricing.
Whether you are in California, Florida or elsewhere, use this advice to guide your listing price decisions, and see our pricing worksheet for guidance!