Almost three months ago, a prospective condo seller got in touch with me. He was moving out of the city and wanted to sell his condo. The condo was rented out to tenants, but he needed to equity in his condo to buy his new place. So he had to sell.
Most of the clients I work with come from the generous support and referrals of my past clients, family and friends. Occasionally I work with clients whom I have no past relationship with. I say this because there seems to be a difference in how a property seller perceives information when it comes from someone they know, versus someone they don’t know.
It shouldn’t be the case. An educated evaluation from an experienced professional should be considered and weighted heavily. But that doesn’t always happen. And sometimes, property sellers work with someone they know, prefer to hear what they want to hear, rather than listen to market advice from someone who is actively involved in the real estate market.
So here’s what happened.
I consulted with the property seller, provided an in-depth market analysis, and a realistic expectation of how much they should expect for their condo. The analysis was based on actual market conditions, previously sold condos that were similar to theirs, and current competing condos listed for sale.
A few days after I had provided my analysis, the prospective seller sent me a text message. They told me they’re going with a friend — who gave them a higher price. Yes, apparently their friend was going to be able to sell their condo at a higher price.
Higher than what comparable condos have recently sold for.
Higher than what competing condos will sell for.
This friend was going to make a miracle happen.
The most recent comparable was listed at $449,900, and sold for $443,000. It took 19 days. And mind you, it was on a lower floor.
But this friend, who was going to sell the condo for a higher price, listed the condo for sale — for $469,900.
The marketing of the condo was pretty standard. An MLS(r) listing. Professional photos. Virtual tour.
But after just 20 days — the $469,900 listing was taken off the market.
Then came round two — a *gasp* shocking price drop of $20k. The Realtor(r) friend listed the condo for $449,900.
Mind you — the most recent sale had been $449,900. My recommendation (to nobody’s surprise) was to list around this same price point. And finally, after the initial 20 days of marketing, this Realtor capable of working miracles listed the condo at the ‘market’ price.
After 42 days on the market, the condo still didn’t sell. The listing was terminated. And the same Realtor friend had to list the condo again.
This time… at $439,900 (which is the price it’s currently listed at).
Recall that a comparable unit, on a lower floor, had recently sold for $443,000.
The condo seller’s unit, being on a higher floor, should have fetched at least the same amount of money. It was clean, nicely finished, and presented well.
Clearly the problem wasn’t the unit itself. Not even the fact that it was tenanted (the tenants actually kept the unit clean).
It was a failed pricing strategy.
Why shouldn’t you overprice your property when it comes to selling it on the market?
First of all — what is the definition of overpricing?
Overpricing is the practice of deliberately pricing your property at a figure significantly higher than market value and recently sold comparable properties, without a justifiable reason of the valuation.
In plain English: listing at a price that’s higher than what your property is worth.
I get that sellers want to get the most amount of money in any real estate market. And there certainly are situations that can influence your decision to ‘test’ the market with a higher price point.
But if there’s no reason why you should be priced at a lofty level, or your property doesn’t have anything to offer as far as value related to price, you’re doing yourself a disfavour by overpricing.
The first thing that will happen is that your property will stay on the market longer than it should be. And this is exactly what happened in this example.
Once you do decide to drop your price, it’ll likely be decreased to market level, where it should have been in the first place. Buyers curiously observing the sale of your property will start to think something’s wrong with it. Why was it priced so high to begin with? Why didn’t it sell? What’s wrong?
This effective compounds further if no there are no takers at your reduced price, causing you to reduce the price even further, to a level below the market price.
At this point, several weeks (or even months) may have passed. Onlookers see that your property has been listed and taken off the market several time, price being reduced in the tens of thousands of dollars. And they figure there must be a reason why other buyers weren’t eager to buy your property.
This leaves you in a very difficult situation — of having to reduce your listing price significantly lower. And at this point, instead of having the opportunity to sell it at what would have otherwise been a decent price (like $443k), you’re going to get much lower than that. If you’re lucky.
All the while, your plans to move ahead with purchasing your next property has been delayed. Stress and frustration wreak havoc on your day to day living. And a stigma is created around your property.
Two lessons here.
#1 — Don’t overprice your property. Unless you’ve got time and money to spare, and if you’re confident the market will head in the direction you want it to, overpricing will have negative consequences.
#2 – Don’t listen to a Realtor because they’re your friend. Listen to a Realtor because they have market experience.