The Poor Strategy of Pricing a Home Above Market Value
Why Home Buyers Boycott Overpriced Listings
The way many real estate agents operate when advising a seller on home pricing is to present a seller with a range of prices, often a low sales price and a high sales price. It's the home seller who selects the listed sales price, and it's the real estate agent who provides the information to help educate the seller. Most sellers will gravitate to the high sales price, but that's not always a good strategy.
Why There Is No Exact Price
There is a range and not a defined exact sales price because an estimate of market value can vary from individual to individual. Take an appraiser, for example. Take five appraisers and ask each to appraise a home. Odds are each appraisal will be different. An appraisal does not mean the home's value is predetermined, but between all five of the appraisals, there will be a range of value, hopefully reasonably close to each other.
Sellers might not know how a real estate agent determines value, and they might not care about comparable sales; how they derive at a value is varied. Some may remember a home that was for sale a few months ago and decide that their home worth is $X amount more. That amount is probably based on a nice round number that might have no bearing on market value. The chart below shows how likely a buyer will be to purchase a house at different prices—either below, around, or above market price.
Why Home Buyers Won't Make an Offer
The feeling among these types of sellers is a buyer can always make an offer. When a buyer doesn't make an offer, sellers don't want to believe it is the price that is the issue. They might look at all sorts of external influences as the source of the problem. Some sellers believe the reason a buyer has not made an offer is because the listing agent is not working hard enough, buyers do not understand the inherent qualities that make the home so incredibly valuable, or the listing company is spending advertising dollars in the wrong areas. However, those are generally not the reasons the buyer has not made an offer.
First, to make a purchase offer, a buyer will expect to see the home in person. Buyers tend to tour homes that are priced in line with other homes on the market. For example, if a buyer is looking for a home within a certain neighborhood, the buyer's agent might send the buyer listings within a particular price range. An overpriced home may not even appear in the buyer's list of homes for sale.
If an overpriced listing appears in a buyer's group of homes for sale, it's because the buyer is looking for a home in that particular price range. However, because the home is overpriced, it will likely fall to the bottom of the buyer's list of homes to tour, if not outright rejected. The buyer will want to tour the more desirable homes that fit specific requirements. An overpriced home, by its very nature, will not fall into those specific requirements because it will be missing the upgrades, space, or location of the homes for sale that are priced accordingly.
A buyer's agents might also believe an overpriced listing is priced so high because the seller is stubborn and refuses to listen to reason. Buyer's agents don't want to work with an unreasonable seller, either. They would rather ignore that listing and show homes that sellers are reasonable and eager to sell.
The Bottom Line
The main reason a buyer will not just make an offer on an overpriced listing is because that particular home does not appear on the buyer's radar. If the buyer never discovers that the home is available for sale, the buyer will never step inside that home. No personal tour, no sale. Further, most buyers do not go out to buy a home, hoping that they can make a lowball offer and win that home. Buyers do not want to insult a seller and will avoid an uncomfortable encounter. Sellers might believe that a buyer is free to offer any price they choose to offer, but most buyers don't think that way.