Setting the bar too high may leave you with an unsold house.
A new study by property website Zillow.com shows that many home sellers are unrealistically optimistic, asking considerably more than they're likely to get. As a result, they risk long delays in finding buyers, which means a lot of lost revenue while the house sits idle on the market.
What's more, homeowners who bought after the housing bubble peaked in 2007 were even more unrealistic than those who bought before or during the bubble, perhaps because post-bubble buyers thought they got better bargains than they actually did.
"We found sellers who bought after the housing bubble burst, in 2007 or later, price their homes 14% above market value," said Zillow, which used sales of comparable homes to figure market value. "Those who bought before the housing run-up, prior to 2002, overprice by nearly 12%. Somewhat surprisingly, sellers who bought during the run-up, from 2002-2006, seem to be the most realistic, pricing their homes 9% over market value."
Market value is a tricky number, because comparable-sales data do not always provide a good guide to a home's value. Nearby homes that have sold in the past six months or so may be quite different from yours in appearance or condition, and there may be too few recent sales to get a proper valuation. That being said, you won't have much chance of getting a premium price on a cookie-cutter condo if identical units have sold for less.
As a seller, you have a right to ask for whatever price you want, which you can drop if no one bites. You may get lucky, but asking too much involves a number of risks, even if you're just "testing the market" for a few weeks or months.
On the pro side, you might get your high asking price. Selling a house is not like a dealer selling cars or McDonald's selling Big Macs, because the home seller needs only one buyer. It's possible that someone will find your home so perfect that it justifies a premium price. For example, a home with a garage converted into a shop may be a turnoff to most buyers because most of them have cars, but a nondriving tinkerer may love the extra work space.
More often, though, pricing your home too high works against you in some important ways. Here are three of them:
1. Agents react. Real-estate agents — yours and the buyers' — may not want to waste time with a home that's unlikely to sell. Though a higher price means a bigger commission, agents might figure they can move two or three homes in the time it would take to sell yours, earning more even if each offers a smaller commission than your property does.
2. Buyers react. Buyers who like your house but pass on your property because of the price may find something else and close a deal before you drop your asking price to a level they'd accept.
3. You need that money. Even if you get your full asking price, the time it takes to get it may cause you to miss out on the house you want to buy. You may have to settle for something that's not as suitable. Even worse, you may end up spending more than you had planned, offsetting the premium you got on your sale.
Setting a proper sale price is both an art and a science. A key step is to shop carefully for an agent who can help you, looking for one who is very familiar with your community and comes with good references. Steer clear of dabblers who sell only a few homes a year. You want a pro who is on top of the market and will value a good reference from you.
Drive around to look at the "comparable" homes used to set your asking price, and look for others if necessary. If you're on a hill, don't use a comparison from a home down in the less desirable floodplain. Make sure the house's curb appeal matches yours. Keep in mind that a computer that spits out comparable sales isn't likely to know that your home has a new kitchen and the others don't.
Finally, keep an eye on the "traffic" - the number of potential buyers who come through your property. A good agent will have a sense of how many buyers are looking. If you are not getting your share, it's a sign you are reaching on price. If dropping your price is inevitable, it's better to do it sooner than later.