Understanding the Risks of Over or Underpricing Your Home

Understanding the Risks of Over or Underpricing Your HomeOne of the keys to a successful home sale is pricing it accurately. Before you sell your home in Columbus, you need to understand the risks of pricing the home either too high or too low. We can help you develop a selling strategy that includes understanding the value of your home and the current local market conditions to set you up to reach your goals. 

The Dangers of Overpricing Your Home

Overpricing is a common error sellers make. Many sellers assume that because a buyer can always offer below asking, it's better to start with a higher price. This strategy is reasonable and even expected in many industries where the price can be negotiated, but real estate is different.

There are some significant risks that come with pricing your home above its fair market value.

Extended Time on the Market

Perhaps one of the most significant risks of overpricing is your home sitting on the market longer than you want. An overpriced home can be easily identified by buyers and their agents  leading potential buyers to bypass your listing in favor of more reasonably priced options. Then, the longer a home sits unsold, the more it becomes stigmatized, causing buyers to wonder if there are underlying issues beyond the price.

Decreased Interest and Showings

Overpricing can also result in decreased interest and fewer showings. Many buyers set search parameters within a specific price range as they explore listings on an online platform, and if your home is priced above what the market dictates, it may not even appear in their searches. This limited visibility reduces the pool of potential buyers, making it harder to generate interest and offers. 

Price Reductions and Negotiation Challenges

Homes that are initially overpriced often require price reductions to attract buyers. Frequent price reductions can signal to the market that you are desperate to sell, which ultimately tend to encourage lower offers. Additionally, if a buyer does show interest, they may submit an offer well below your asking price, leading to prolonged and potentially frustrating negotiations.

Appraisal Issues

Even if a buyer agrees to pay your inflated asking price, there are hurdles to overcome, particularly during the appraisal process. Lenders are going to require an appraisal to ensure the home is worth the loan amount. If the appraisal comes in lower than the agreed-upon price, the buyer is probably going to have some difficulty securing financing, which may even cause the deal to fall through. At the least, it will necessitate a price renegotiation when you could have started with a reasonable price to begin with.

Taking a Risk with Underpricing

While overpricing is a more common issue, underpricing also comes with some risks. You may assume that underpricing your home will lead to a bidding war or a quick sale, but it's not that simple. 

Home sales expert Bill Gassett of Maximum Real Estate Exposure provided helpful guidance on the importance of accurate pricing.

"When selling real estate, a proper asking price is 75-80 percent of your marketing. If you get that wrong nothing else you will do matters. Most of the time people overprice their homes but on rare occasions underpricing can happen as well. If you underprice a house there is a chance you'll leave money on the table.

Most of the time this will occur in a buyer's market. It rarely happens in a seller's market because there will be multiple buyers who will recognize the attractive price. It reinforces the importance for a seller to get an accurate comparative market analysis from a local real estate agent or professional appraiser."

These are some of the risks of underpricing:

  • Loss of potential financial gain: Underpricing your home carries the risk of financial loss. Selling for less than the market value means you are not maximizing your return on investment. While a lower price might attract multiple offers and create a bidding war, there's no guarantee that the final selling price will reach the home’s true value, especially if market conditions are not in your favor.
  • Negative buyer perception: A home priced significantly below market value can raise red flags for your potential buyers who may suspect that there are hidden issues with the property. This suspicion can deter serious buyers and attract only those looking for a bargain.
  • Extended time on the market: Contrary to what many sellers think, an underpriced home may end up staying on the market longer. This is because many of your ideal buyers may not even look at it because it seems too good to be true. 

How to Get the Pricing Right

Getting the price right requires having the right real estate team. With years of local expertise, we are able to help you price your home based on local market conditions and a Comparative Market Analysis (CMA). We know that even when our clients want to price their home accurately, it can be complicated to decide what that number is. We know how to help, and want to earn your trust.

Ready to learn more about selling your home in Columbus? Contact us any time. 

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