Pricing a little higher to test the market? Don’t… it hurts!

the corrrect strategy will get you the most when selling your home

There are mistakes you can make when selling your home that seem like a good idea but aren’t. One of the most common and arguably the biggest mistakes made can lead to a lower sale price and a longer wait to get the lower price. Imagine making a mistake that not only leads to a lower price but also takes you a lengthier time to get less money? It doesn’t sound good and the mistake in questions is “pricing a little higher to test the market.”

After learning the market value of their home from their Realtor’s price evaluation people often decide to up their listing price a little to ‘test the market,” and they have no idea how flawed that plan can be.

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For example, if the Realtor’s recommended listing price is $254,900 on a house that should sell at $252,000, and the sellers wanted to “test the market” at $269,900, it doesn’t seem like much but it’s a 7% test. Even when a property is 2% overpriced it might not receive an offer – at 7% it certainly won’t. And even if it did receive an offer 7% over the market value the lender/bank would stop the sale with an appraisal.

 The reason the idea of ‘testing the market’ sounds good is everyone wants to earn more money on their sale. The reason it doesn’t work is that there are other homes on the market and readily available information for all buyers. The homes priced right will attract the buyers – buyers shopping these days know prices very well and by comparing many homes for sale it’s obvious to them when one is priced carelessly.

Using the example above a normal market might have an average of 11 homes selling each week in the 200-300k price range. That seems like good news until you look into how many homes are for sale in that range. There were over 200 on the market at the time and that’s 200 competitors.

How with a report indicating a list price of $254,900 is a property priced 7% too high going to sell in a market where only 5% of the homes listed for sale each week sell? Even if no other listings entered the market in that range the high priced home would take 15-20 months to sell. Understand, addition competition will keep entering the market, the house priced 6% too high will not sell when there are so many others available at more competitive prices.

The only chance of it selling at it’s the higher price is if the markets average sale price increase 7% and that would take a minimum of 12 months in a fast growth market.

The seller who prices too high will probably have to make one or two price reductions before they find themselves in the correct price range. If it takes them 30 days to “test” each of their new prices it could be 60+ days before they are in the range of receiving an offer.

I mentioned at the start of this article how a seller pricing high might not only cause a longer wait between listing and selling but they might also cause a lower sale price… here are a few charts below that demonstrate.

This graph illustrates the importance of pricing correctly. The centerline represents market value. As you move above this market value, you attract much smaller percentage of prospective buyers, greatly reducing your chances of a sale. Conversely, as you move below market value, you attract a much larger percentage of potential buyers.

Activity vs. Timing This chart highlights the importance of pricing correctly at market value. This chart illustrates the level of excitement and interest in a new listing over time. It also demonstrates the importance of pricing correctly. When a property is first listed, it generates a very high level of interest from prospective buyers, which reduces dramatically over time. It’s important to be priced right when the most people are have their eyes on a new listing.

Remember, when pricing your home you’ll do better pricing correctly.

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About the Author

Blake King
Having lived in Red Deer my entire life and having experience in many avenues of real estate I offer enormous value to my clients.