Every home seller wants to get the highest price possible but setting the price too high, even if you are willing to take less, may not be the best strategy.
As an example lets assume we have a seller who is working with a good Realtor and through reviewing comparable homes that have recently sold and those on the market it is determined the value of the home is $500,000. The seller may even agree with the agents assessment of value but feels it is worth trying to get more. So he requests the house be marketed for $550,000 knowing if he accepts a lower offer it may be higher than the $500,000 originally suggested by the Realtor. The agent does their job, places the home in MLS, provides online photos, prints flyers, advertises in the newspaper and even does open houses. The seller sits and waits to get offers he can negotiate.
At the same time buyers are out looking at homes to buy. They are qualified to buy homes in the $550,000 range and they see the listing and compare it with other similar priced properties. These potential buyers see our example listing is not as large or does not have the number of upgrades or features as other homes selling for $550,000. When there are plenty of houses to look at, buyers will skip some listings and only look at homes where they feel they are getting the most for their money.
They buyers who are qualified to by a $500,000 home are looking in that price range and generally do not want to look at homes much more than $525,000. Taking negotiations in to consideration prices above that amount are likely going to end up being more than they can afford and/or qualify for. These potential buyers will probably not see our example listing priced at $550,000.
In todays market this situation seems to happen more often than it should and causes homes to sit on the market for long periods of time. With our market of growing inventory levels, listings can become stale very quickly. The first two weeks on the market is the time listings generate the most interest and activity. When homes are on the market for longer than the average time, for a given price range, buyers start feeling hesitant to consider them. It is like the early days in the video rental store where people crowd around the new release section and some great movies in the drama isle get no attention. In this situation, it is my experience, even if the seller elects to lower the price to something closer to the market value, they will likely receive less than if they had started with a lower price.
There is a fair amount of research that indicates pricing a home at its market value from the start will generally result in getting an amount closer to the asking price. Sales prices of homes in the Sacramento area have been averaging higher than 97% of asking price. Getting the highest price for a home is best achieved by maximizing the number of potential buyers who see the home and that can be accomplished by avoiding overpricing.
A recent National email survey conducted by House Hunt, Inc and reported in a story by RISMedia indicated that overpricing was the number one mistake home sellers said they made when listing their homes. The margin was nearly three-to-one over the second choice which was dealing with the same agent who represented the buyer. That and potential conflicts of interest are good subjects for a future article!
The bottom line in setting the price on a home is to set it within 2 to 3 percent of the market value. This increases your opportunity to sell at the highest price possible and in the shortest amount of time.