It’s no surprise that sellers want to get top dollar for their beloved house. Can you blame them? They’ve likely put a large amount of money, time and love into the home, and they don’t want it to go unappreciated or undersold. But listing a home at a high starting price can be disastrous for the sale.
Two recent U.S. News & World Report articles refer to the “list high, lower later” concept as both a ubiquitous real estate myth, and a sure-fire way to plummet a home’s selling price. In 9 Common Real Estate Myths That Plague Buyers and Sellers, author Teresa Mears reports, “Listing your home at too high a price may actually net you a lower price,” since shoppers and their agents don’t even look at homes priced above market value. Kevin Brown Jr., regional director of the National Association of Exclusive Buyer Agents, offers this warning:
“If you misprice it in the beginning, it can tend to languish, and you may end up selling it for less than you would have if you had priced it correctly to begin with.”
The jury is in. As Realtors®, we know that listing a home above market value is usually a misstep. So, how do we carefully explain to a homeowner that their house is not worth as much as they think? And of equal importance, how do we do this without negatively impacting the agent-client relationship? Here’s an example of how to handle this delicate conversation in a successful way:
Client: Can we list our home higher and lower it later?
Agent: That’s a great question, and I never really saw a downside to it until I researched the national stats.
[Pull out a copy of the graph below and share it with the client.]
If a home sells in the first 4 weeks of it being listed, it will sell for 6% higher than a home that’s had its price reduced again and again. The reason for this is simple: there are hundreds of buyers who have been waiting for your home to hit the market for the last 6 months. They’ve been looking for some time now with no luck. When your home hits the market, you’ll have maybe 300 potential buyers who would be a fit for your house. Once those 300 buyers see that your home is priced too high, they’ll cross it off their list and move on. The only buyers who will see your home after that are the ones just entering the market. You may only have 2 or 3 of those buyers every week. If we list your home high and reduce later, it may be too late.
So, do you see how listing your home at a fair market price at the beginning makes you more money?
C: Not really. My house is better, because ___________ (their upgrades, etc.).
A: Of course your home is better! I recognize that, and so will the buyers when they are comparing your home to others on the market. If the buyer narrows it down to two similar-priced homes, but yours has the extra upgrades, which do you think they will choose?
A: Yes, but if yours is priced ________ more, most buyers will opt for the lower-priced home and use the money they save to make upgrades to suit their tastes. Or even worse, they may not even look at your home because it is priced so much higher than the competition. Do you see why home buyers do that?
C: Yeah, I guess.
A: Right. So, lets list your home at a fair market price to get you the most money possible.
C: Alright, let’s do it.
Hopefully, the majority of your clients will trust you enough to let you price the house appropriately — especially after listening to this reasoning. Share some examples of homeowners who listed high and ended up selling below fair market, or who had their house on the market for months (which always leads to suspicion) – and of course, share some positive examples of homeowners who listed at fair market value, and for whom the sale closed quickly and successfully.
In some cases, sellers may insist on listing their home higher than you advise them. You might have to suck it up, buckle in and hope for the best — at least temporarily. (Shameless teaser: we’ll be sharing a script and tools for handling that scenario in an upcoming blog. Stay tuned!)