A common "myth-understanding" when selling a home is that if a seller prices the home high to start with, then they'll have "room to negotiate" with a buyer. In other words, a higher price allows them to be "flexible" and shows they're willing to come down on price during offer negotiations.
While this thought process initially sounds reasonable and appears that it could work, I've found over the years that starting high will more likely backfire and end up costing the seller rather than benefiting the seller. Why? Read on...
If you as a seller, price your home, let's say $20,000 above market value hoping for some "room to negotiate," instead of buyers liking your home and making an offer, a buyer may figure that since the home is overpriced - in this case by about $20,000 - that you might be unreasonable since the home was priced so much higher than what the market indicates the price should be. So, that buyer may pass up your home completely.
In addition, let's say a buyer is only able to afford a home for no more than $250,000, for example. And let's say your home is really only worth $250k, but you priced it at $270k (to allow that room to negotiate). The buyer, only being able to afford a maximum price, limits his online searches to homes priced at $250k or less, so your home doesn't even show up in his search; he never knows your home even exists. And, even though you were ultimately willing to come down to $250k, and ultimately this buyer would have been willing to purchase your home at $250k, the fact that it was priced so high (for that room to negotiate) completely eliminated the possibility of it selling to that buyer.
Another unexpected result of pricing too high is that since there are other homes in the area similar to the seller's home, and most of those are priced "correctly", in other words, they're priced at market value, the seller's overpriced home helps the other homes look more reasonably priced and ultimately "drives the buyers" to the other better-priced homes.
The most likely end result? Since the home was overpriced for the market, it didn't sell. It sat on the market while others sold. It became a "stale listing". The seller gets frustrated and ends up reducing the price in order to revive interest in the home. However, since it's been on the market a while, lowering it to the originally-correct market value is no longer prudent. It must be lowered to a "better than market value" price in order for buyers to become interested again. Remember... the longer a home is on the market, buyers wonder why it didn't sell. They start to think something might be wrong with the property since it hasn't sold. And sellers must price it below market value in order to sell it.
The home ultimately sells for well BELOW market value - BELOW what it would have sold for had it been priced correctly in the first place.
The moral of the story: Price it at market value (or below) from the start to generate interest and get it sold. If offers come in too low, then the seller can make a counter-offer. If the home is truly worth the price, then "room to negotiate" won't be necessary. It will sell. Of course, consult your Realtor on the best pricing strategy for your property.
By the way... if a seller wants to build in a LITTLE room to negotiate - maybe a few thousand dollars - that's fine. It's just so many sellers think $20k or $30k or more gives them more room. That's what I'm talking about... small amount, OK... large amount, not OK.
Questions? Call me at (916) 241-8000 or (530) 677-1332. Or email me.
Other pricing-related articles for your review:
What a Seller "Needs" or "Wants" Has Absolutely Nothing to Do With Pricing a Home For Sale
Home Seller Tip: Pricing Right Nets MORE and Sells FASTER
The Simple Truth About Pricing a Home to Sell
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