[M04/S12] Overpricing Your Home for Sale

In any discussion on real estate pricing, we need to talk about the phenomena of overpricing your home for sale, that is, where a home owner decides to put their home up for sale above market price.

Sometimes this is done on accident, other many times it is done intentionally. The logic goes that overpricing a home will leave room to negotiate, that buyers can always offer less, and the price can be reduced later if need be.

There are two main reasons home owners tend to over price their home. The first is when they aren’t in a rush to sell. If they have no particular time by which they need to sell their home, many homeowners will feel more comfortable setting a higher price for their home. Often times, this is not a conscious decision; it’s just how we’re wired, psychologically.

Next, when homeowners tend to set a high price when their home is unique – unique to the point where there may be few buyers for it, or where there is a lack of good comparable sales data to show what the price should be. In cases like this, when the property is much less of a commodity for which traditional rules of economics are less applicable, over pricing a property is more common.

For such properties, buyers will tend to focus first on the characteristics of the home, rather than the price. It’s for this reason that high end luxury homes tend to sell for substantially less than asking price. Buyers for these homes are not shopping in a price range par se, they’re looking for just the right property, and will negotiate at that point.

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