What is your first thought when you see an overpriced listing? Do you think the seller is not serious about selling? Do you assume the seller or the seller’s agent doesn’t understand the strategies for determining the most effective list price? Or are you the eternal optimist? Do you think the house must in some way be that much more special than recently sold comparable homes?
In my experience, the “eternal optimist” is a rare showing. In fact, many buyers fail to even consider touring the overpriced home because they think the seller is unrealistic and not serious about selling. The overpriced home creates a series of consequences for sellers and they are not very pretty. Yet, for buyers it could represent a potentially great opportunity.
Seller Beware! Old-school notions about pricing don’t work well under current market conditions.
In our current market conditions, sellers never benefit by starting too high in price. There was a time when buyers would consider paying more than market value for a home they love, but the recession put those days to an end. In addition, banks will not fund deals where there is a complete mismatch between the agreed upon price and other similar, recently sold homes. If a client insists that I price a listing significantly higher than market value, I make it clear that there are numerous risks in doing so. This includes 1) attracting the wrong buyers who are comparing your home to larger or more updated homes that are priced similarly; 2) setting yourself up for a stale listing with an extended market time which makes the listing seem to be unsellable; and the most detrimental risk, 3) failing to create excitement about the listing in the first few weeks of the listing’s life, which considerably weakens the strength of offers you will receive.
Buyers take note! An overpriced listing is an opportunity.
For a buyer, an overpriced listing can be very advantageous. This listing is one that gets less traffic than it deserves so as a buyer you have an advantage over the seller from the start. I show buyers homes in a price range that buyer is comfortable with and I will also show overpriced homes–homes which I know may have a value significantly lower than list price but still where my client wants to be in price. Knowing which homes are overpriced is actually priceless information in our market area, and this information is difficult for the average consumer to figure out. It requires previewing homes that fall outside of your price range and knowing exactly what really accounts for market value and appraisal value. When I preview, I can see the major factors that would create deductions in home value, such as a compromised lot, awkward floor plan, poor craftsmanship, lot issues, etc.
Handling negotiations for an overpriced house takes experience and skill. Many buyers don’t want to start off on the wrong foot with a seller by offering well below list price. However, if I know a house will not appraise for a certain number, then it is my obligation to provide the data and reasoning that justifies why my buyer is offering to pay a reasonable price and not a dime more. Once I make a case, it is up to the seller to respond. If the response reflects a re-consideration of value or even the pricing process by the seller, we have a shot at getting a deal together. Over time, well thought out offers are always given due consideration. Knowing the right way to analyze and present offers puts buyers in the driver’s seat with an overpriced listing. Where some see overpricing, I see tremendous opportunity.