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5 Risks of Overpricing

5 Risks of Overpricing

By Kathy Schmidt, Broker/Owner, Schmidt Realty Group Inc.

Did you know that in order to get your home sold, you have to sell it 5 TIMES?  It’s not often discussed, but it’s the truth!  But what about “we just need to find the ONE right buyer?”.  That’s still true, but it’s only 20% of what it’s going to take to get you across the finish line.  Let me explain…

  1. Other real estate agents are first on your list to impress.  They’re often the ones choosing the homes that the buyer will see first. Yes, the buyers may suggest homes as well, but their agent will most often be screening properties carefully to hand-pick the best of the best to show them. One of the things they’ll be looking at is the price of your home. Is it priced at market value?  Or is it over-priced?  Is it in the right price range?  If a home is significantly over-priced, it could get missed by the agent in their search, or they may choose to exclude it because it appears to be well outside of their client’s price range. For instance, if a buyer is pre-approved up to $325,000 and your home is priced at $350,000 it’s very likely that the agent won’t pick it to show their client.  $25,000 is a significant extra amount for a buyer to come up with above and beyond what they’re approved for. The agent is much more likely to start with homes that fall within the buyer’s price range.  Oh, and a word of caution here… If your home is really worth closer to $325,000 and you price it at $350,000 what will happen is the buyers who do see it will compare it to homes whose value lines up with a price of $350,000, so you won’t be snapped up by this group either.
  2. The buyer is actually the easiest step out of all 5. They’re focused on imagining themselves living there and might even be willing to pay you more than market value!  That all sounds pretty good if you’re the seller, but beware of steps 3, 4 and 5.  They can put your deal at serious risk!
  3. The third party you have to sell your home to is the lender. They have to believe in the value!  If the lender isn’t happy, the mortgage won’t be approved, and that means the buyer won’t be able to finance their purchase … so no sale in the end.
  4. Next you’ve got to sell it to the appraiser.  The appraiser really works for the bank, not the buyer in most cases. It’s their job to ensure that the bank isn’t lending out more than the house is worth!  They’re not emotionally involved. It’s all about the facts. What’s sold recently that’s similar to your home? How does your home compare to those properties? What added features does your home have to support a higher value?  If the facts don’t support the offer price, the appraisal could come in lower. That means that either the price has to change, or the buyer has to make up the difference! Let’s say your home is listed for $450,000 and you receive multiple offers so there’s a bidding war and you receive an over-list offer of $475,000.  You’re thinking it’s time to crack the champagne! But not so fast… What if the appraisal comes in at $460,000?  There’s now a $15,000 difference between the value the bank will finance so there are a few alternatives. Either the buyer finds a way to come up with $15,000 extra in cash down payment, or you renegotiate the price to $460,000 so the buyers can finance it as planned. Alternatively, you and the buyer may discuss meeting in the middle somewhere, for instance $465,000. That would work if the buyer could come up with another $5,000 in down payment. But either way, it’s very unlikely you’re going to actually sell your home for that $475,000 figure with a lower appraisal.
  5. Lastly, you’ve got to sell the home to the mortgage insurer. Most buyers have less than 20% down so their mortgage is insured with CMHC or another mortgage insurer.  The mortgage insurer will look at the buyer’s credit worthiness (and they’re tougher than the lender sometimes!) and the value of the property as it relates to the appraisal.  For condos, they will also look at the financial stability of the condominium corporation. I’ve seen deals make it all the way to the insurer and collapse because of an issue with value or the condominium corporation’s financial status.

So, bottom line is there’s not a whole lot of point in over-pricing. And the good news is, pricing in the right range not only attracts the right buyers, it will attract more buyers. And that’s what’s going to give you your best shot at getting your best price with a deal that actually gets done.

Got questions? Contact any of our awesome agents anytime! We’re here to help you understand the market so you can make an informed choice that’s right for you and your family!

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