|The Dangers of Overpricing||9 September, 2016|
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The Dangers of Overpricing
BY ED SILVERSTEIN
Broker, RRS, SFR: Clearwater Montana Properties
Read More About Ed
Some agents will deliberately inflate a property's value to get a listing with the hope that the market will improve and/or that they will be able to work the price down to a point that the property is saleable. Intentional overpricing can hurt the value of the property and result in costs to the seller. Here’s how:
Burning a Property with Agents
When a property first hits the market, the listing is automatically sent to many of the agents working the area. If properly priced, the agents will send it to their buyer clients or keep it in mind for the future. Overpriced properties are dismissed and often ignored, even after the price has been reduced.
Burning a Property with Buyers
When a listing is first posted it is widely distributed to dozens of real estate websites. Buyers are often automatically sent all new listings in the area where they want to purchase. If the property is properly priced, they will add it to their list and if it is a little too expensive, they can follow the property and be notified of price drops. If too overpriced, it will be eliminated and they might never look at it again, even if the price drops.
Also, many of the listing services disclose how long the property has been on the market. Buyers seeing something on the market for long periods of time may suspect the property has something wrong with it or, even if the property has been reduced to market value, that it is still too expensive.
Unnecessary Costs and Loss of Value
An overpriced property can take several years longer to sell. The seller will potentially have to pay thousands in mortgage, insurance, and tax expenses during that time.
Consider also, real estate is cyclical and overpricing is more prevalent during the height of a market when listings are at a premium. By the time the property is priced correctly, you may be chasing the market down and have to take a far lower price, or wait years for the cycle to come around again.
Appraisals and Lending
New federal regulations have negatively impacted rural and vacation property values. Appraisers are discouraged from using sales beyond the previous 12-month period and are often not permitted to use similar sales from other areas nor take into consideration rising market conditions. If a property is overpriced, chances are it will not appraise nor will a loan be approved.
Not only does pricing a property appropriately keep Realtors in compliance, it also keeps the property top-of-mind with consumers and with other agents. In addition, it increases the likelihood of a timely sale, which avoids unnecessary costs to the seller. Fend off the real estate game show blues and make sure "The Price is Right."