I was recently asked about pricing a house, “Isn’t it better to set the price 10 or 20 thousand dollars over the market to leave room to negotiate?” Setting aside the question of whether this was ever a good idea, in today’s sellers market, it turns out this is actually a really bad idea!
Markets and buyers’ habits have changed over the past decade. Much of the “old wisdom” about pricing, marketing and negotiations run headlong into a drastically changed world. For starters, 20 or even 10 years ago, buyers entered the market with much less information available to them. They were totally dependent on an agent for market data, and few of them truly understood what data was available. Today, with the Internet, mobile apps and portal sites, buyers are more savvy about market conditions than ever before. This alone, would be reason not to price your home above market value. But the current lack of inventory, which has resulted in a strong sellers’ market, means that well-priced homes will go for asking price, at a minimum. Buyers, understanding that they may well face a bidding war, are no longer looking at homes at the top of their budget, understanding that those houses will quickly rise out of their budget range when the bids start pouring in. This means that the most qualified buyers for your home won’t even look at the house if it’s priced above their real budget. But those who will look at your house are expecting more than your home likely offers, since they are expecting it to offer the same qualities and amenities that a home at that price and higher offer. These house hunters will be disappointed in your house from the outset and quickly move on to better-priced options.
As an example, let’s say the market value of your house was $550,000. The most qualified buyer for your house, one who is willing and able to spend $550K for it has most likely capped their search at $525K in order to account for multiple offers and bidding wars. Meanwhile, if you are listing your house at $570K, your qualified buyer will consider it far to expensive to consider, while those who do come looking at it will be expecting to see a home worth $570-600K and be very disappointed in what they see. No matter how often you beg for viewers to “bring all offers”, in current market conditions buyers are conditioned to think of listing price as a floor, not a ceiling for offers!
So what about the tactic of “testing the market” at a higher price, then lowering it when no offers come in? This, too, has fallen victim to the glut of market data now available to the average buyer. Today it is relatively easy for buyers to see how long a house has been on the market, and even if it was taken off the market for a time and put back on at a lower price. In today’s markets, buyers make one of two assumptions about such properties: there’s something wrong with the house, or the seller is difficult to negotiate with. In either case, buyers are reluctant to step in for these properties.
The answer, then, to the age old question of “how much negotiating room should I build into the price” is quite simply: None. Pricing the house to market is essential in getting it in front of the most qualified buyers for the property. If you want to be somewhat aggressive, in fact, pricing the house just slightly below market value can be effective in sparking just the sort of bidding war that drives the selling price well above asking. This strategy works when the house is truly desirable, in location, condition and terms. To get the most from your house, look first to the condition of the house and property. Make all necessary repairs, spiff up the place with fresh paint, updated lighting and hardware, consider adding Smart Home features like the Nest Thermostat or August lock, and de-clutter and consider professional staging. These will have far more impact on the sale price of your home than any pricing or negotiating strategy. Click here for a free report on cost effective ways of increasing the value of your home!
If you would like some advice on how you might price your home to compete in today’s market, please contact me, I’ll be happy to come do an evaluation and show how I can help you market and sell your home for the best price to enable you to pursue your dreams, wherever they take you!