The Real Reasons Your Home Isn't Selling - Part 1: Price
Has your home been sitting on the market for a few weeks without any serious offers? Are you starting to get frustrated because you thought the process would move along a little faster? Unfortunately, it can happen, even in a very hot seller’s market. The truth is, having your home on the market is incredibly inconvenient, especially if you are still living there. Having to keep it show-ready at all times (especially if you have kids) can be a full-time job in itself. So, it is understandable that you’d like to get it sold already. The good news? There are really only three reasons your home isn’t selling. Sure, people can (and often do) make it much more complicated than that. But the truth is, it really does come down to three critical factors that will make your home stay on the market longer. The first (and often biggest) is the price. While you are free to list at any price you choose, if you really want to sell your home, overpricing can lead to some serious problems.
In fact, study after study shows that price is the single largest determining factor for length of time on the market. An overpriced home is one of the largest hurdles to overcome and can make even the best-laid marketing plans completely ineffective.
I get it. It’s enticing to price your home a little higher than previous sales to see if you can score big with a full-priced offer. Sure, in theory, this could result in a higher offer and sale price, but that doesn’t mean testing the market by setting your home’s price above what the house is worth to “see if you can get it” is a good strategy. There are a couple of reasons why:
You lose your peak marketing time — The first 30 days your home is on the market, you have the most leverage as a seller. Your listing is fresh and you have buyers’ attention. If your home is overpriced during this timeline to “see what kind of offer you can get” you will lose traffic and attention during the critical 30-day window. Pricing a home correctly from the start will help you maximize the attention on your home and allow you the best opportunity to get the highest possible offer. After your home is on the market for a while, buyers will start wondering whether something is wrong with it and the listing will grow stale. The pendulum will then swing the other way and the buyer will feel like they have the upper hand.
Buyers have more leverage the longer a home sits on the market — Days on the market heavily influences what a buyer is willing to offer. Buyers will feel like they have more room for negotiation the longer a home sits on the market and you may get lower offers than if you listed at a realistic price from the start. Contrary to what you might think, overpricing a home does not actually lead to a higher sale price. In fact, the exact opposite is true. Check out the data from the National Association of Realtors (NAR) below. While between 70–85% of homes on the market for less than 2 weeks sold for at or above asking, once a home reached 5–8 weeks on the market, only 23% received the full list price. Similarly, at the 5–8 weeks, mark sellers were twice as likely to provide some type of buyer incentive (closing cost assistance for example) than sellers whose homes were on the market for two weeks or less. At 17 or more weeks on the market, the number of sellers providing some type of buyer incentive triples, and only 9% received their full asking price on this listing. Not only are you more likely to take a lower offer after more than 5 weeks on the market, but you're also more likely to have to provide buyer incentives as well. That’s a double hit to your bottom line.
Buyers won’t even see your listing — Keep in mind people usually set up search parameters by price when looking online for a home. If you’re priced just over their search parameters, your home won’t even show up as an option! People tend to set search parameters in roughly $25,000 intervals, so, if your home is worth $420,000 but you decide to reach and list for $430,000 you will lose out on everyone searching within the $400,000 to $425,000 range. It doesn’t mean you have to list only in intervals of $25,000 but consider what pricing your home just over a common price cut-off might do to your potential buyer pool. Hint, it has the potential to shrink it significantly. Overpricing your home by 10% will cut your potential buyer pool in half. Overprice it by 15% and you will lose 90% of your potential buyers. Those are some pretty big numbers hits!
You’ll help your neighbors get offers — I’m sure you want to be a great neighbor, but sacrificing the sale of your house to help a neighbor sell theirs is probably not what you had in mind. When you price too high you’re making any other homes listed in the neighborhood look like a better deal. Everyone likes a bargain. After they see your higher-priced home, they may be eager to get the better-value house nearby- even if they liked your home better.
You lose credibility — Most buyers have done their research and have a ballpark idea of what homes in your neighborhood are worth. When you price too high, potential buyers might not even look at your property. Buyers will also associate list price with quality. If the quality of your home is not to the standards of other homes listed around the same price point, you lose their trust and significantly reduce the chance of them even making any offer at all. Plus, if you have to repetitively drop your price to bring the listing down to market value, people will not trust the price reduction and you will see lower offers (if you even get any).
It might not appraise — Even if you DO get that dream offer, you’re not quite out of the woods yet. If your potential buyer is getting a mortgage, the lender will require an appraisal. If comparable homes sold within the last six months don’t support your sales price, then the mortgage will not be approved. This can cause a lot of last-minute issues and stress for both groups and typically either require the buyer to come up with extra cash (which they may or may not have) or you as the seller taking a reduced price to allow the deal to go through.
A word of warning — beware of the “yes man” — When interviewing potential listing agents, be wary of those that agree to any price you want or give you a significantly higher listing price suggestion than others just to get you to list with them. That’s honestly the oldest trick in the book. Some agents will try to lure you in by promising you an over-inflated sale price, knowing that it makes them more attractive to you. Other agents might not be intentionally trying to deceive you but are uncomfortable telling you the truth about your home’s list price. You don’t want that either. Good agents will tell you honestly what you can expect to list your home for. There should be actual hard data to support your list price. If there’s not (and it’s not because your home is a highly unique property with no comparables in the area), it is probably overpriced. This wastes everyone’s time and will cause your home to sit on the market for months, costing you money in the long run.
Competitive pricing is one of the most critical pieces of getting your listing to sell. If you’re absolutely set on a higher price, consider making improvements that add value to your home. Certain small changes can add significant value. Your real estate agent can help you with exactly what changes will result in the highest value increase specific to your area. Not convinced price is the issue? I’ll cover the two additional reasons your home isn’t selling later this week: condition and marketing.
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Lindsay is a Realtor® with Berkshire Hathaway Home Services Georgia who specializes in helping clients visualize the potential of homes. She enjoys helping homeowners create spaces they love through decluttering, organization, and intentional design. Sources:
Beracha, E., Seiler, M.J. (2014). The Effect of Listing Price Strategy on Transaction Selling Prices. J Real Estate Finan Econ 49, 237–255. https://doi.org/10.1007/s11146-013-9424-1
Gordon, B.L., Winkler, D.T. (2017). The Effect of Listing Price Changes on the Selling Price of Single-Family Residential Homes. J Real Estate Finan Econ 55, 185–215. https://doi.org/10.1007/s11146-016-9558-z
Jud Donald, Seaks Terry & Winkler Daniel (1996). Time on the Market: The Impact of Residential Brokerage, Journal of Real Estate Research, 12:2, 447–458, DOI: 10.1080/10835547.1996.12090852
Lukas, Moritz, and Mollica, Vito and Noeth, Markus and Trueck, Stefan. (November 2, 2018). Over the Top? Overpricing and Advertising Effectiveness. Macquarie University Faculty of Business & Economics Research Paper, Available at SSRN: https://ssrn.com/abstract=3277443 or http://dx.doi.org/10.2139/ssrn.3277443