Pricing a House too High

By Steve Gillman - 2006

I hope the short true story on the past page demonstrated what can happen when you try pricing a house too high for the market. Here are some of the specific reasons it can backfire when you try to get too much from your home.

1. Unless you live in the house, you have holding costs while your over-priced home sits there. These can include utilities, taxes, insurance, home owners association dues, maintenance and more.

2. The "right" buyer for your home might have passed on by because it was over-priced. You might have to later sell it to someone who won't pay as much as the other buyer would have.

3. All the time and money spent advertising and showing an over-priced home may be lost. Chances are, you'll just have to price it right eventually, and start advertising all over again. In other words, you will pay to market your home twice.

4. When you are pricing a house too high, all the buyers whose price range is just below your price will never see the home. When they enter their criteria into an MLS search, your home won't show up in the selection, even though they might have paid more than you will eventually sell the home for.

5. You'll get more discouraged and desperate the longer you wait. I wouldn't want to say it to John (in the story above), but by the time two years had gone by, his home was probably worth $190,000 - if he had cleaned it up. In any case, $175,000 was fine with him at that point, because he was tired of it all.

6. People are suspicious of homes that have sat unsold for a year, and less likely to make an offer even if you have finally lowered the price. "Oh, that's the house that has been for sale forever. I wonder what's wrong with it?"

7. You may have problems closing. Even if you find a buyer at your inflated price, the appraisal will likely come in lower than the offering price, and your buyer won't be able to get a loan. In our true story, what bank would have let a buyer pay $229,000 for John's home, and loaned $206,000 (90%) on a home that appraised at $180,000? They might have loaned 90% of the appraised value, or $162,000, but unless the buyer had $67,000 to put down on a grossly over-priced home, John would have been out of luck.

So, we can see the problems of pricing a house too high. But how do you price it right? Read on...

The book continues here: How to Price a House - Striking the right balance.

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