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You’re selling a newly remodeled home
Sometimes, the way you price a remodeled home can ultimately get you more than you had in mind originally. As this example from Elmer Morales, an agent in Southern California, demonstrates:
“I had an investor, he had bought the property and fixed it up. We staged the house for him, and he told me, ‘Elmer, I absolutely want to get $420,000 for this house, and I’m not going to take anything under $420,000.’”
Morales persuaded the client to set the listing price at $414,900 to encourage higher offers from buyers. This led to several buyers going into a bidding war, and the best offer came in at $432,000, which was a $12,000 increase for the seller.
If you price your home low, will it backfire?
Underpricing can definitely backfire and result in losing thousands of dollars if your strategy is not timed right, or buyers don’t respond the way you were expecting. Before setting a lower price, make sure you take into consideration the following:
Home prices in your market are on a downswing
For an underpricing strategy to work in the seller’s favor, home prices should be trending upward or at least holding stable. When home prices are on a downswing, the buyers approach listings with the expectation of getting a good deal and are less likely to bid up the price.
There are plenty of similar homes on the market
When there’s a lot of inventory of comparable homes in the market and less demand, that indicates a buyer’s market. This means buyers won’t be inclined to overbid if they can find a similar home for the same or a lower price.
You priced your home too far below market value
When a home is priced well below market value, buyers may automatically think it needs extensive repairs. Even if this isn’t true, the misconception can grow as the home sits longer on the market and doesn’t sell at the reduced price because people are concerned about the amount of work it may need.
2. List your home above market value
When will pricing my home above market value work in my favor?
When you decide to list your house above market value, you usually have indications that the market would support this strategy. Most buyers — unless they fall in love with your home — will not want to voluntarily pay more. But even if they’re willing to, there’s still a limit to what most buyers can afford, and you have to be careful not to overprice your home. Here are the typical reasons when it might make sense to list your home above market value:
You’re listing in a seller’s market
When you’re listing in a seller’s market, you have more leeway in pricing higher. The U.S. market remains seller-friendly due to the ongoing housing shortage and a reluctance to give up ultra-low mortgage rates.
“If your neighbor sold for $800,000, then maybe you price at $850,000,” explains Carpenter. “A comparative market analysis will always have a range, and in a strong seller’s market, you can go into the high range and maybe even bump it up from there.”
According to Carpenter, other factors that indicate a seller’s market are when price reductions are low, the seller market action index is high, and most properties are receiving multiple offers.
You need to move or want to downsize your house
If you’re tired of maintaining a larger house, it could be a good time to sell. The upkeep isn’t how you want to spend your time, or you physically can’t maintain it anymore. Raising your price during a seller’s market could be a way to get some extra profit to buy your next home.
You want to get more money since home inventory is low
In an active seller’s market when inventory is very low, it makes the few houses that are for sale really stand out, especially if interest rates are also low. Taking advantage of this situation and pricing above the market value can attract buyers who want to lock in a lower interest rate.
You’re selling a home that is in demand
If your house is one of the few currently being sold in a coveted location, such as along a waterfront, within a top-performing school district, close to desirable amenities, or if it’s a popular style, buyers will usually expect to pay a higher price.
How can overpricing my home backfire?
“If you’re priced at the high end of value, your home is going to be sitting and accruing market time and, especially in a market that’s still moving, you’re going to automatically lose value in your house,” warns Louise Juracek, a top agent in Bakersfield, California, who’s witnessed this strategy fail time and time again in her 42 years of experience.
Carpenter also recommends having your agent look at Google Analytics or other user traffic data on their website to gauge how long people are looking at listings to determine if the pricing is working or not.
“If I have 3,000 people looking at the website, spending a minute and a half on this page, I should have twenty showings and at least four offers,” says Carpenter. “But if we’re getting those metrics and not getting those showings, then it indicates that price is off.”
Home prices in your market are based on different CMAs
When you’re looking at a comparative market analysis (CMA) and you’re not comparing the same square footage, location, or features of your house to others that are closer to what you actually have, it can skew your pricing and not attract the right buyer’s attention.
Buyers compare similar homes, and your price is much higher
When buyers notice that your price is much higher than all the other houses that are similar to your home, that can make you stand out in a bad way. Buyers might think the home is overpriced, or they might not even see your listing at all if they’re focusing on a lower range where your house typically would be priced.
Your price is based on your neighbor’s selling price
Carpenter says a seller can list their home for any price they want, and typically will compare their home to their neighbor’s house.
“Basically, it’s ambitious pricing where the seller says, ‘Oh, well, my neighbor’s home, which is exactly the same as mine, sold for $500,000, but since I lived here, it’s worth $600,000,’” says Carpenter.
However, Carpenter thinks it’s always best to look at both the active and the sold homes to get a realistic idea of what buyers actually paid for the homes versus only the listed price.
