Before iI was an agent, I inherited partial ownership of a beautiful home in the El Cerrito hills. I would have loved to have moved in and raised my children there, but their dad was not interested in commutes that involved bridges. Because we didn't move in, i learned first hand one of the most important lessons anyone involved in real estate needs to discover - whether as an agent or a seller. Unfortunately, I was educated at a cost not only to myself, but to my neighbors as well.
My co-owners and I were not up on supply and demand economics, and in our lifetimes, real estate had only generally gone up. We also only had personally experienced selling of our homes in rising markets. Unfortunately, we chose to sell this lovely house at the bottom of the 90's market. The house had been worth much more in the past than it was at the time we went to sell, and we didn't believe the agent who had the misfortune of representing us when she gave us her opinion of value. We wanted to list at $425,000 and she wanted to list at $385,000. We listed at $420,000. Nine months, and a new agent later, we sold at $335,000. The appraisal came in at $385,000. We lost the $60,000 we might have had, if the correct price had been agreed upon at listing (translation: if we had listened to the agent). We cost our agent a hundred hours of her time, as well as her marketing expenses. Now, as an agent myself, I feel badly about wasting her time. The neighborhood also paid a price in the lowering of the value of their homes in the process.
So when your agent encourages pricing at a certain place, it might be good to consider that suggestion even if you don't like it. Our agent was foolish to allow us to set the price. She should have walked away when we would not listen to her. I have been that same agent, and when I have allowed sellers to set the price, I have invested far more energy in the sales process than I would have, had I held my ground or walked away. When I encounter this in my practice, it is smarter for me to find a different seller who trusts me enough to choose the proper price.
Off the other side, one can also price too low. A house on one street in a neighborhood in which I work, closed last week for $425,000. I felt that this was a damaging price for the neighborhood, because other recent comparable homes had sold for around $465,000. A lower sales commission was part of why it was discounted, because while an agent did do the paperwork, it was really a FSBO. Only because I was very familiar with the buyer's senario did I have this information. A few days ago, some sellers on the same street offered their slightly smaller house for $300,000. Why? It's a short sale and they don't care what it sells for. Tthey have no consequences beyond a spank to their credit, for a decade of using the home as an ATM. (tax records show the many times they refinanced over the years.) But it is devastating to the rest of their neighborhood, for them to offer their home $100,000 or more below comps. It probably won't close at that price, but it messes up anyone else considering selling in the neighborhood.
I have a listing on a house purchased a few years back and have had it priced at an appropriate amount for short sale. It is tenant occupied, and does not show well. While we wait for the tenants to move out, four offers have come in, and several other buyers have wanted me to write offers on their behalf. All of these were significantly under asking. It would not be fair to the neighbors to sell it at the lower price, even though it might be possible. The owners are not being pressured to sell and are willing to wait until the house can be marketed more fairly.
In my opinion, in a declining market, the best price to list is about 5% below value, to generate traffic and create competition. in a rising market, pricing over current comps only adds to the frenzy. You can do that, for your own short term gain, but now we have seen the international cost of feeding the frenzy.
Sellers, when you set your price, please try to remember it is not completely about you! Setting too high a price will most assuredly cost you money in the long run. It is also unfair to the professionals you ask to represent you. However, setting too low a price hurts the people you will leave behind, and all of us in the long run.
In the end, you don't do surgery on yourself: you ask a doctor. Don't try to value your own home. Ask your Realtor® to price your home, and everyone wins.
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