1) If you overprice you will become a "stale listing": A stale listing is a listing that's been sitting on the market for a number of months and despite price reductions, buyers already have made their first impression of the house and mentally crossed it off their list. Homes for sale see the most action in the first three weeks and if you come out of those first three weeks without an offer that should be a tell-tale sign that you're overpriced.
2) The home won't appraise: When a buyer takes out a mortgage the bank/lender orders an appraisal to make sure that the money they lent will have the necessary collateral backing it in case of default/foreclosure. In essence if the house sells for more than it's worth the buyer will have to increase their down payment to meet the banks lending criteria and if they don't have the money to do that then the deal will be killed by the lender.
3) Buyers don't look at overpriced homes: Stats show that 60% of all buyers look at homes priced at market value, where as only 10% of all buyers look at homes that are priced 15% or more above their fair market value. The goal is to price your home to the most broad base of buyers because more buyers = more offers = bidding war = higher sales price. It's just common sense.
4) You position yourself as the best buy on the market: Typically homes are listed for about 5% more than they sell for. By listing your home at fair market value you look like you're a steal of a deal due to the competitions overpricing. What we see here is that there's a ton of interest in the property, multiple offers, and quite often a bidding war breaks out that causes your home to sell for above market value. This is really the only way to get your home to sell for above market value because if you were to list along with all the other homes you're not differentiating your property. Sure, you'll have a buyer or two interested but at that point they'll have all the pricing power and they'll really be able to beat you up on the price. Listing at fair market value is the same strategy that all the top agents in the country use, and is recommended by top real estate coach, Mike Ferry.
5) The longer the home is on the market the less it sells for: Sotheby's recently released a study that showed that homes that go under contract in 10 days or fewer sell for 98.9% of their asking price where as homes that sit on the market for longer than 121 days sell for just 86.9% of their asking price (stale listings).
In conclusion, you would rather have 10 offers to choose from and create a bidding war than have one or two low-ball offers that you have to negotiate on because your house is overpriced. If you price your home at fair market value from the beginning you will get top dollar. It doesn't matter what you paid for your home 5 years ago, the market determines the price today. For example, think of it like the stock market. Say you bought a stock 5 years ago for $100 but today it's only trading for $75. Sure, you'd love to get $100 for that stock and break even but the market is telling you that if you sold it today it's worth $75 and that's not negotiable. The same goes for real estate.
As always if you have any questions feel free to reach out to me KyleKovats@Gmail.com.
-Kyle Kovats, New Jersey Realtor
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