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Pricing your home correctly is one of the most important things you can do to sell. A significantly overpriced home is one type of Buyer objection. We have noticed over the years, at least in the areas we sell, that a significantly overpriced home will have little or no showings, and will usually receive no offers. Some Sellers who significantly overprice their home are not that serious about selling, but will sell if somebody is willing to pay it. Others are serious but may be testing the market, and figure that they will just consider the offers as they come in. Our experience is that these Sellers also are likely to receive no offers at all.
First of all an overpriced home will just seem dull when compared to other homes in the price range. If the strategy of overpricing is to not leave money on the table, then you may be disappointed. It’s true that Buyers often start lower than the list price with their initial offer, but if they see the price is too far out of range, they won’t waste their time writing an offer, but will simply move on. Another consequence is that the Buyers that should be looking at your home probably won’t notice it because it is above the price range from which they are pulling candidate houses. By overpricing your home, you may in fact be wasting time and losing money at the same time. You could miss the market curve, or “peak season”, during the point when you are overpriced, and once you get to the correct price, you could be left with fewer buyers. That can result in getting a lower price than if you priced it right from the start.
One consequence of overpricing that is commonly overlooked is that a listing can become stale. A stale listing is a listing that has been on the market for a long time. So how does a stale listing affect value? Well for one, Buyers are going to be more aggressive on price on a stale listing than one that just hit the market, thinking that you are more desperate to sell. And two, Buyers are going to over scrutinize your home wondering if it were just the price causing it not to sell or if there is something else wrong with it. So if you have obvious Buyer Objections, other than price, those may get magnified by potential Buyers. For example, if you are on a difficult lot which might weed out a certain type of Buyer, it might now appear to be weeding out all Buyers. If you are thinking of pushing the price on your home, make sure everything else is perfect first. We have sold several flip houses with objections regarding the lot, and we still managed to pull top dollar out of the neighborhood because of superior condition. You won't be able to do that if you become stale, so you need to be confident in your price.
Most homes are not overpriced on purpose. A lot of them are overpriced because neither the Seller nor their Realtor understands how to price homes, so they rely rules of thumb on other sources. Most Sellers don’t sell homes for a living, so it is understandable that they might not know. There are a lot of inexperienced Realtors in the business at any given time, so choosing a Realtor just because they are a friend or a relative is usually not helpful. A common mistake that leads to a home being overpriced is relying on Price-Per-Square-Foot (PPSF) as the basis for pricing the home. Experienced Realtors know better, but if your Realtor is new or a part-time Realtor they may also be fooled by this method. After all, you hear the builders quote PPSF, you see it on those HGTV real estate shows, and you even see it called out on real estate forms, but don’t be fooled, it is a terrible way to price homes. The error range of PPSF is often greater than plus or minus 10%. Plus or minus 10% may not seem bad, but on a $500,000 home, that is an error range of over $100,000. You need a Realtor that knows how to do a proper CMA in order to reduce pricing errors.
Zestimate and Other Online Sources - One common misconception we encounter when pricing homes is that these online sites use an industry accepted standard for estimating a homes value. In our determination, it is a glorified Price-Per-Square-Foot model that perhaps attempts to compensate for various other features as well, but it improves its performance artificially by self correcting as the actual values get reported. This makes it seem like they have a better track record than they do. That is to say, yes Zestimate will eventually get your price correct, because hindsight is 20-20.
We have a background in flipping houses, which gives us a unique opportunity to test these algorithms. We have checked Zillow several times by first noting the Zestimate value of a flip that we intend to purchase. In those cases the value was significantly over inflated as the condition of the homes were poor and they sold significantly below the Zestimate. After we wrote an offer and got it accepted, we checked the Zestimate value again a few weeks later, and Zillow inevitably moved its Zestimate towards the list price at the time it pended. It didn’t yet know the sales price. Once the sale was complete and the sales price became known, Zillow appeared to move its Zestimate toward the sales price, though not always exactly the sales price. Then the process repeated after we relisted the home, usually $100,000 or more over what the purchase price was.
To the casual user, it might look like Zillow magically gets the value right, but if you could look at the history of each Zestimate, you will see it lags the actual value so much that it could not be used to accurately predict the sales price. Then you hear, "Well on average, it probably is pretty close", but if you read our page on Price-Per-Square-Foot, you can see that even in new neighborhoods where condition is relatively the same, and when you pre-screen homes so that they have the same number of bedrooms, bathrooms, basement finishes, and garage bays, and when you know the exact sales price, this price-per-square-foot method is not accurate enough to satisfy most Sellers. Then try applying it to resales where matches are not as easily found. It is the lack of displayed history that makes Zestimate look far more accurate than it in fact is. Another thing we have noticed is that these sites rely on County information that often is incorrect in terms of square footage and basement completion or bedroom count for homes that are not currently on the market..
Expired listings are not the end of the world. There are many reasons other than price that result in homes expiring, but typically it is because the Buyers have objections that they feel could be more easily remedied by simply moving on to another home. Buyer objections are not always obvious; some of them are hidden and raise their heads during the inspection process. In those cases you may get an accepted offer, but the deal might fall through due to undisclosed conditions such as mold or wood rot that then become objections. How the Seller chooses to handle the problem could be an objection, or not being comfortable with the condition itself can be an objection. Mold is certainly one of those items. Sometimes Sellers know about these things but avoid addressing them ahead of time because they are selling and are not interested in spending money on something that they view will only benefit the Buyer. They also sometimes think these issues won’t be noticed by the Buyers. Keep in mind most Buyers will have the house inspected and a trained inspector will go over every inch of the property. As experienced Realtors, we know how to spot Buyer Objections and often have ways to address them, and often at a lower cost than what you might expect.
One important thing to note is that most Buyers are not looking for a project. If problems are obvious, the best Buyer may walk away without giving the Seller a chance to address them. Many Buyers can overlook one major objection if the house otherwise is perfect or if the correct compensators are in place. For example if your house has no back yard, but has an awesome finished basement, then a Buyer who is not an outside person may overlook that point and focus on that awesome basement. The more major objections you have, the harder it is to compensate. Even minor objections can be a problem and put you in second place. The second best home is the first loser once the Buyer writes on the other home.
Homes don’t always expire due to overpricing or condition, sometimes it is just due to a lack of Buyers. If the average days-on-market is high in the area, then you could be the victim of an oversupply of homes. We have not seen a broad based oversupply of homes for quite some time, at least not in the Northern Indianapolis area. Not since the financial crisis anyways. Economy, lending practices, interest rates, declining schools, etc. can all factor into expired listings. Your price point can also be an issue. Homes in the Million dollars plus range can sit for a long time due to a lack of buyers, even when everything else is selling. Besides the fact that there aren't a huge amount of buyers in that price range, these buyers are also very particular. Particular enough that they often choose to build new so they can get exactly what they want. The higher the price range, the more important it is that a home be updated and in excellent condition.
Bulk listing agencies have a high percentage of expired listings. It is a numbers game for these types of agents, though they have a lot of expired listings, they rely on the overall number to get them through. These include discount brokers and high volume agents. The discounters are letting the Seller handle most of the transaction details, and often high volume agents have limited time to handle clients so they have their non-licensed staff or lesser experienced team members assist in client relations. We are more hands on than most agents, so we both work closely with out clients to try to give them the best service available.
An interesting phenomenon that we have seen lately due to the tight housing market is homes expiring not due to condition or lack of Buyers but ironically homes expiring because of too many Buyers. It sounds counterintuitive but what is happening is the Seller finds a house that they love, but they can’t make a non-contingent offer because they need to sell their home first. They end up writing a first-right offer, which states that if a second offer comes in, they have a short window to remove their contingency or they lose out on their offer. So they hurry up and put their house on the market, but before it gets an accepted offer, they lose out on their purchase. So fearing that they may become homeless by selling their home before they find another, they pull their house off the market where it eventually expires. You can kind of tell these homes as they have short days on the market, with no pending offers. These types of expired listings are not something that you can change without increasing the supply of available homes.
Feedback from each showing is important, but don’t bet on every feedback reply being helpful. Sometimes the feedback is held back because of the old saying “If you can’t say anything nice, don’t say anything at all.” Buyers or their agents may just avoid giving you the bad news. If you have multiple objections and the feedback only lists one, don’t assume that the others were not a problem as well. Sometimes it is easier to say that they didn’t like the neighborhood than to say what specifically about the house they did not care for. As agents, we follow up on feedback and try to find out what the real issues are and find out if there is anything we can do to work things out. Feedback can be the best way of understanding how Buyers feel, but sometimes you have to dig to find it. There is a good chance that with multiple showings that you can figure out what the issues are even if they come up separately.
We would recommend that you give us a call so that we can take a look at your property and see if we can help. We have sold quite a few expired listings and used our expertise to help turn these around. Sometimes it is price, sometimes it is condition, and sometimes it is the Seller not knowing how to best address the Buyer Objections. We have a very broad background that comes in very handy when evaluating these types of properties. We know some great contractors, flooring suppliers, painters, and online retailers that can save you a lot of money making necessary updates and repairs. We would love an opportunity to discuss selling your home.
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