The US needs a little over 3 million homes in order to adequately accommodate our population.
Obviously, real estate is local and some cities, like New York and LA, have a bigger gap between housing supply and demand, while other cities like Austin, TX or Boise, ID are doing just fine.
Look at this chart for a visual of the problem:
The point is that the basic laws of supply and demand dictate that home sellers have the upper hand. So why do some homeowners still end up fumbling the bag? Why do they end up with a home that either sits on the market for too long or doesn’t sell at all?
Simply put, price. 99 times out of 100, it’s price.
The Common Cycle of Home Seller Mistakes – Agent
For a number of reasons, many agents won’t tell the homeowner the truth because many homeowners don’t want to accept reality and end up learning the hard way.
Here’s what typically happens. You decide that you want to sell your home. Ok, let’s interview a a few real estate agents.
- Real estate agent 1: Professional, good presentation, but we didn’t like the potential price he suggested.
- Real estate agent 2: Professional, good presentation, and they said they could sell our home for even more than we thought. Let’s go with them!
Both agents probably have a god sense of what the home would potentially sell for given the current market conditions. Agent 2 told the homeowners what they wanted to hear because if he didn’t, he may not win the listing.
Agent 2 figures that worst case scenario, it’s an opportunity for him to promote himself to the neighborhood and other potential buyers, while the home sits on the market for several months and eventually sells for the lower price Agent 1 had suggested to begin with. But guess who gets the commission? Agent 2. This is called buying the listing.
Overpricing Your Home
You figured why don’t we just start high just to see what happens, and Agent 2, of course agrees with you. You’ve just set yourself up for failure.
If the decision is between starting a bit higher vs starting a bit lower. Always, always, always choose lower.
Starting high and hoping for the best may seem like a harmless strategy, but it can backfire significantly. Overpriced homes tend to linger on the market, exceeding the typical 30-day window for new listings.
This delay leads to a stigma, where potential buyers start speculating about hidden flaws or issues with the property. “I wonder what’s wrong with it.”
Consequently, the seller ends up chasing the market downwards, implementing one price cut after another in an attempt to align with buyer expectations and market trends.
The psychology behind pricing cannot be overstated. A property that remains unsold for an extended period often raises red flags among buyers, leading to lower offers and a diminished perception of the property’s value. Perception is reality.
Price your home too high and you may end up with a lower offer than its potential market value.
Pricing Your Home Correctly
Price is what you pay. Value is what you get.
If you want a true understanding of your company’s competition, the marketplace, potential buyers etc…you talk to the sales department. They have their ear to the streets. Same thing in real estate.
An agent’s license says “real estate salesperson.” Good realtors have their pulse on the local market and can tell you which way the wind is blowing. Not 3 months ago, not last year. Today. It’s why good agents should be relied on to provide you with an opinion of value.
Rely on them to price your home correctly. Not your ego, not what you think you need to make a profit. Just the true market value. Period.
If you think your agent is wrong and is pricing your home too low, the market will bid up the price of your home to its true market value – a win. However, the opposite may not be true if you price your home too high.
When a home is priced correctly from the beginning, buyers end up competing with each other, driving up the price of your home.
Again, think about the psychology of it. A potential home buyer shows up to the open house. Wow, there are a lot of people here. I knew this was a great house. We’re not letting them steal this house from us.
Price your home too low, and you will have a line around the block. Buyers will naturally bid up the price of your home and you can choose any offer.
How many people would show up to an open house for a mansion in Beverly Hills listed for $20,000? People would fly in from around the world to see it! That’s obviously an extreme example but you get the point.
Exceptions and Assumptions
This all assumes that you have a competent agent who has a good sense of the true market value of your home.
It also assumes they have done the basics of advertising your home on the MLS, taking professional photos and writing a good listing description. If this is not the case, then obviously that should be addressed.
Now, there are unique situations and exceptions to the rule. Maybe your home is not in the best condition. Maybe it’s on a busy street. Maybe the floorplan is a bit funky or your kitchens and bathrooms are outdated.
Ok, what can be done to make sure your home still sells? Right. Price. It all comes back to price.
Adjust the price of the home accordingly to compensate for the aforementioned factors and there won’t be an issue.
If, however, you’re comparing your home to a home that does not have any of the issues your home does, and you can’t accept the cold reality that your home’s price should be lower, you’re likely setting yourself up for failure.
And many polite agents won’t tell you, but the market will.
The Truth Will Set You Free!
Many people will ignore this advice and go on about their business. That’s fine. Others may disagree. That’s fine as well. At the very least, we hope that we have shed some light on what happens in this industry and why it happens.
A lot of it has to with psychology and incentives. The psychology and perception of value in the eyes of a potential buyer. The fact that many people are not logical buyers, they’re emotional.
The fact that an unscrupulous agent may simply tell you what you want to hear. At the end of the day, agents have to feed their families as well. Why be truthful and lose the listing and the potential commission to the next agent?
But you, the home seller, are in the driver’s seat. This country is not building 3 million homes anytime soon. This sucks for many homebuyers and most of our people are NOT homeowners unfortunately.
But the market is the market. Neither you, nor your realtor, nor anyone else can dictate what a home will sell for. That is the market’s job.
But if you’re fortunate to be a homeowner in position to sell, we just told you how NOT to mess up a good thing for you.