We often harp on why you need to price your home according to the amenities and features that you are offering relative to the rest of the market. We talk about square footage and number of bedrooms. Of various floor coverings and the ages of systems. We speak about them because people will only buy what they perceive to be value versus a similar home for sale at the same time down the block. If your home is overpriced, yes it will sell. But the time it takes to sell is inversely proportional to the attractiveness of the price. It will take more time, oftentimes much more time, to sell an overpriced home. That is an axiom, a truth in real estate.
Home sellers often makes assumptions like “’My home will sell fast, it’s in great shape”; “My home is worth x, because that home sold for x”. Or, “I’ll offer my home up here (too high) and I’ll have room to negotiate down”.
These statements may have some truth to them, but they need to be put in context.
In the case of the first statement, if your home is in great shape yes it will sell fast – but only if its priced correctly. No one will overpay for a home just because it’s in mint condition. All the pieces need to be in place; the proper features and amenities for the neighborhood, the condition and location, and the price.
In the case of the second statement, yes that could be true as well. But only if the first home that sold for x has the same features as yours, is in a similar location and is in the same condition. We really need to compare apples to apples.
And the third statement, well the part about having room to negotiate down in this market is for all intents and purposes fictitious. There is no such thing as building negotiating room into a home price anymore. All you succeed in doing by adding room to play in a price is causing less people to see your listing online. People start their search online by price and if you have an extra amount of money in the price for negotiation room you will lose some people that are searching up to where you will really sell, but aren’t searching any higher than that.
So what is the actual cost of your home not selling in a timely fashion? We often hear when someone wants a certain number for their home, let’s use $500,000, that if we sell it for $475,000 the homeowner thinks he ‘lost’ $25,000. But we don’t see it that way. For starters that $25k wasn’t yours, no matter what you have in the house or what you’ve spent on upgrades. The money that’s yours is what your left with after you pay off everyone at the closing table. And we don’t know what that will be until a contract of sale is executed. You absolutely do not know the net proceeds until your home sells. You don’t know when you’re thinking of selling, nor do you know when you’re listing it.
What we want to discuss here is the cost of carry on your home for the months that you didn’t sell but the property was on the market. What does it cost you to run your home on a monthly basis? If your mortgage is $2500 and your tax bill is 1000 and your utilities are $500 than before incidentals like lawn care, and upkeep you are out of pocket $4000 a month for every month that your home is listed but not selling. To be fair some of these costs will be incurred when you sell and move, yes. But let’s say that the numbers are a little different.
Let’s say your tax bill is $24,000 a year, or $2000 a month. And say your mortgage is $3000 a month. It costs you another $2000 in utilities, lawn care, upkeep, and incidentals. Your monthly budget to run the home that you want out of is ($2000+$30000+$2000) or $7000 a month. You thought your home was worth $800,000 but maybe it’s only worth $750,000 or so. And you feel that that’s ok, when I see the $750,000 bid ill just counter to that seller and be in contract.
There’s a couple problems with this thinking. One, the real cost of overpricing by 50k is that that $750,000 buyer is never going to see your home online. He isn’t going to call his broker on it, he isn’t going to the open house and he isn’t loving the photos on the listing. Because today’s buyer of $750,000 is only shopping online between $725,000 and $775,000 at best. And more likely he is narrowly shopping between $730 and $770. Even if he sees your house and makes the effort to come and see it in person, there’s a good chance he will not put in an offer because he is so far away from the asking price.
But let’s get back to that $7000 a month in carry. If your home sits on the market for six months, not only are you not getting the extra $50,000 that you thought your house was worth, but you are eating $42,000 in cost of carry for your home. At the best, with a perfectly priced listing, the time between contract execution and closing is 60-90 days. So you are losing carry on 3 months in the best of all worlds. If your home sits for six months first, you might be out 9 months of carrying or $63,000. If you misprice your home to the high side, you really risk having a home sit on the market for a long time. And when a home sits, the perception is very bad. Right or wrong, even when you finally reduce the price to where it should have been in the first place, people have been looking at it so long they have a perception that something is wrong with it.
In our above example, if we think the home is worth $750,000 we want to price it there. Because two things can happen, both good. One, a buyer comes in and pays it quickly. And please none of this “I left money on the table because my house sold quickly”. You hired a broker to do just that. If you wanted $750,000 for your house and your broker got that for you in the first hour of the listing, he did his job, and well. And the second thing that could happen is two people may want to buy it, or more. Now it could trade for higher than the asking price. Again, happy dance.
The takeaway is this. We, your listing agents, are your partners. We want you to get the most for your house as possible. When we suggest a price it’s not to ‘lowball you” (I’ve heard that I’ve done that, silly). It’s not because we have to work less to sell it if it’s a lower price (we don’t, and will work much harder if there is a multiple offer situation). And it’s not to start a bidding war (although that might be a benefit to you).
We want you to list your home at the right price for one reason. To meet your goals. We want to sell your home in a timely fashion so you don’t have to keep it “showing immaculate” for any longer than necessary. We want to sell your home in a timely fashion so the cost to carry the home you want to sell isn’t eating up the profit that you’ll realize. It’s our job as your fiduciary to take care of the sale but also to pay attention and point out what is best for you in the long run. And in almost all cases, once you have decided to sell, then selling quickly is the best plan of action.
It’s a hassle being a homeowner trying to sell a property you live in. We want to make it as easy as possible for you. You have made the tough decision to sell and move on. You have taken the leap of faith and agreed that we are the right brokers to sell your home and help you meet your goals.
Don’t let the added time it takes to sell an overpriced home eat into your profit on the property. Price it where it should be, and keep the carrying costs during the sale process as low as possible.