How high is too high when it comes to pricing your home strategically?
In a low-inventory market, like the one we’re currently in, it can be tempting for you and your agent to think about pricing your home higher than market value. The market is favorable for sellers right now as buyers compete for available inventory, interest rates stay low and home values continue to rise. As you discuss pricing your home with your agent, you might be tempted to aim high. After all, if buyers are willing to pay top dollar for what’s available, why shouldn’t you price high?
This strategy may not always be the best when it comes to pricing, even in a low-inventory market. We decided to dig through some of the available housing market data to find an answer to the question, ‘How high is too high when it comes to pricing?’
Housing Market Data for the Northeast Iowa Area from April 2020 to October 2020
This housing market data comes from the Northeast Iowa Regional Board of REALTORS® (NEIRBR®) which manages the MLS for northeast Iowa, including Cedar Falls, Waterloo, Waverly and surrounding areas. This data includes single-family resale homes and new construction from April 2020 through October 2020. The numbers are broken out by price range so you can see how the impact of overpricing affects all sellers.
Data is further broken out by homes that were priced at market value when listed and had no price reductions and homes that were priced high and had at least one price reduction.
Highlights
- Homes with price reductions were priced at a median 6.3% higher than homes with no price reductions.
- Homes that had price reductions sold for an average of 91.3% of the average original sale price while homes with no price reductions sold for an average of 98.1% of the average original sale price.
- Homes with no price reductions spent an average of 29 days on market while homes with price reductions stayed on market for an average of 143 days.
- The final price per square foot was higher for homes with no reductions in every price range.
3 Key Takeaways for Sellers and Their Agents
What does this data tell us about the impact of overpricing your home when you first list it?
1. Pricing your home too high will increase the number of days on market. Makes sense, right? If your home is priced too high above market value, you might attract potential buyers to showings but a high price tag can and will deter them. While buyers are in real need of available inventory, that doesn’t mean they can pay anything a seller asks for, especially if buyers are financing their home purchase. The data here shows that homes that had multiple price reductions stayed on the market for almost five times as long as homes with no price reductions.
2. Overpricing can lead to an increase in the number of price reductions you make. According to this data, the longer homes sat on the market, the more likely it was they would have at least one price reduction. If there’s activity around your home (showings, good feedback, etc.) but no offers or lowball offers, you might find yourself dropping the price to attract more buyers and offers. The homes in this data pool had price reductions an average of 1.5 times- so the price had to be dropped almost twice before the home sold.
3. Most homes with price reductions sold for about the same amount (if not less) than the homes with no reductions. In every price range but two ($6400k-$500k and $750k-$1M), the homes with no reductions had higher average sale prices than the homes with price reductions. On average, the homes priced at market value sold for 98.1% of the asking price- compared to 91.3% for homes that were priced high.
This data tells us that although it might feel like leaving money on the table initially, you actually don’t gain anything by pricing your home too high when it first hits the market. Pricing your home above market value doesn’t always translate into a higher sale price. In fact, overpricing will lead to an increase in the number of price reductions and an increase in the number of days your home sits on the market. But in this market, you will likely end up selling for the almost the same amount that you would have if you priced at market value from the beginning.