Selling your home is an exciting time, but it can also be stressful. One of the biggest decisions you need to make as a seller is determining the right asking price for your property. Set the price too low, and you risk leaving money on the table. Set it too high, however, and you could end up overpricing your home.
Overpricing is more common than you may think. In a hot sellers’ market, it’s tempting to try to get top dollar for your home. However, overpricing your property comes with several risks that should give any seller pause. Keep reading to learn why you should avoid overpricing at all costs.
Key Takeaways:
Overpricing leads to a longer time on the market, costing you more in the long run.
An overpriced home can develop a stigma, deterring potential buyers.
You may lose negotiating power if you have to lower your price later.
Overpricing could cause you to miss the current market window.
It creates unrealistic expectations that can be hard to come down from.
You want buyers competing for your home, not passing it over.
What Does It Mean to Overprice Your Home?
Overpricing means setting the listing price of your home higher than what the current market value realistically supports. Essentially, you’ve attached an exaggerated price tag to your property that is out of sync with the prices that comparable homes in your area are fetching.
Some overpricing red flags include:
You want to get back every dollar you’ve invested into your home.
You insist on an aspirational price only, ignoring market data.
Your asking price far exceeds even the higher-end comps in your area.
You won’t come down much from the initial overpriced list price.
Sometimes an overpriced home is 10%, 15% or even 25% higher than what the data shows it should be listed at. While a small overreach may still allow room to negotiate, anything beyond about 5% is considered clearly overpriced.
Why Sellers Overprice Their Homes
There are a few common reasons why a seller might intentionally overprice their property:
1. Unrealistic expectations. It’s easy to become emotionally attached to your home. Some sellers have unrealistic expectations of their home’s value, hoping for an aspirational sales price.
2. Lack of market insight. Sellers may simply be uninformed about current market conditions, recent sales, and other data needed to properly price their homes.
3. Trying to make up for over-improvements. Owners who over-improved their homes usually want to try to recoup their full investment. But home upgrades don’t always directly correlate to added property value.
4. Advice from an inexperienced real estate agent. An agent without proper training or understanding of the local market could suggest an inflated price.
5. To leave room for negotiation. Some sellers intentionally price high, expecting buyers to negotiate down. This outdated tactic can easily backfire in today’s market.
Regardless of the reason, overpricing a home almost always ends up costing the seller in the long run.
The Costs and Risks of Overpricing Your Home
Just because you list a home for top dollar doesn’t mean you’ll get it. More likely, an overpriced home will sit on the market for longer. Here are the potential risks:
Longer time on the market: This is one of the biggest dangers of overpricing. The longer your home sits unsold, the staler it becomes to buyers. A home that lingers on the market raises suspicions and can even develop a stigma.
The average home in Canada sells in around 2 months. But an overpriced property can end up sitting for 6 months or more with no offers coming in.
Buyers may think something is wrong with the home if no one has made an offer, even in a hot market. This “stale listing stigma” makes it less appealing the longer it sits.
Data shows overpriced homes ultimately sell for less than homes accurately priced from the start. The longer it sits, the more you may have to reduce the price later.
Your listing can “expire”: When a home is on the market too long without garnering interest, buyers begin to wonder what’s wrong with it. Many eventually dismiss an overpriced listing, thinking it must not be desirable if no one has made an offer after months or even years on the market.
Active listings are usually considered “expired” after 90 days without an offer. At this point, buyers are very wary of the property.
You may have to officially delist your home and then relist it again later to refresh it after an expired listing period. But buyers don’t easily forget.
Relisting or repricing your home after expiry signals desperation to sell and ruins your negotiation leverage.
Missed market opportunity: Markets fluctuate. If you overprice and wait too long, you risk missing out on today’s ideal market conditions. A hot sellers’ market could shift to a more balanced or even buyers’ market, meaning less demand for your home.
We’re currently in one of the hottest sellers’ markets ever in Canada. But experts warn it could cool off in coming years.
High buyer demand allows sellers to negotiate top dollar offers today. But demand may wane in the future. Missing your window could cost you.
Even changing seasons like spring and fall impact buyer demand. Overpricing could mean carrying your listing into a slower season.
Less negotiating power: To attract buyers, an overpriced home usually must come down significantly in price later. After one or more price drops, buyers know you’re eager to sell. This takes away your negotiation leverage.
Buyers will see previous list prices and price drops. This signals motivation to sell quickly rather than holding out for top dollar.
If you have to lower your price several times, savvy buyers will negotiate hard knowing you overreached. It’s harder to get a great offer.
Reluctant sellers who have to reduce their inflated price often refuse to negotiate as much. They may stubbornly cling to unrealistic expectations.
Turning away interest: Some buyers will dismiss an overpriced home immediately and not even view it or consider making an offer. It pays to be priced competitively to generate more interest and bids.
Many buyers filter out overpriced listings when searching online. They focus only on homes priced within their budget.
Buyers with agents rely on them to identify overpriced properties compared to actual values. They won’t waste time viewing or considering these homes.
Investors and flippers looking for a good deal won’t consider homes priced too high to make a profit after renovations.
You incur extra costs: The longer your home sits, the more you’ll pay in mortgage interest, property taxes, insurance, utilities, and maintenance costs. You also extend your timeline for achieving your own goals for moving on.
Carrying costs like utilities and property tax average around $300 – $800 per month for homeowners in Canada. The longer your home sits, the more this adds up.
Your mortgage interest costs accumulate over time as well. This increases the financial pressure on you to sell.
Holding onto your home also delays your ability to purchase your next property if you’re looking to upsize or downsize.
In most cases, you don’t just lose time and money from overpricing. You usually lose the most money by pricing too high to begin with versus pricing competitively.
How to Price Your Home Accurately
If you want to avoid the risks and increased costs of overpricing, you have to take the proper steps to price your home correctly:
Consult real estate professionals. Hire an experienced local agent who can provide up-to-date market insights and help price your home accurately. Agents have access to sales data you don’t.
Look at recent comparable sales. Look at similar homes that have sold in your area very recently, focusing on square footage, amenities, upgrades and other details.
Consider current market conditions. Factors like inventory levels and buyer demand greatly impact home values. Don’t rely only on older sales data.
Weigh agent feedback objectively. If multiple agents advise you that your desired price is too high, consider their assessments carefully rather than dismissing them.
Remove emotions from the equation. Make decisions based on market data, not personal feelings, to determine an accurate asking price.
List at 95-100% of fair market value. This leaves just enough room for negotiation but still attracts buyers. Price near the high end if demand is strong.
The right agent will help you determine a competitive list price, negotiate effectively, and bring in qualified buyers. Avoid picking a list price only to back down from stubbornly later. Price it right from the start for your best shot at selling for top dollar quickly and successfully.
Where Sellers Go Wrong with Pricing
It’s helpful to understand some of the common missteps sellers make when overpricing their homes:
Using outdated sales data: Basing your price on what homes sold 6-12 months ago leaves you out of touch with today’s market. Recent sales better reflect current conditions.
Not accounting for home condition: Sellers often expect top dollar without making needed repairs or updates. Homes in poor condition must be priced below updated comparable properties.
Failing to be objective: Emotions and wishful thinking lead to inflated prices. You can’t rely on what you feel the house should be worth.
Ignoring carrying costs: Holding out for too high a price costs you the longer your home sits unsold. Those extra months of mortgage and tax payments add up.
Over-investing in upgrades: Improvements should focus on maximizing buyer appeal, not trying to over-inflate value. Not all upgrades recoup 100% at resale.
Too much optimism if the market is rising: When the market heats up, it’s easy to get carried away and attach an ultra-high price, but you still need to price within market norms.
Listening to inflated agent estimates: Some agents give high estimates just to win the listing, then try to bring the seller down later or risk losing the client.
Thinking lower interest rates justify a higher price: Lower rates do drive affordability and prices up, but you’re still constrained by the value of comparable homes.
Testing the market: Listing high to “see what happens” risks missing serious buyers and valuable time on the market while you wait for impossible offers.
FAQs About Overpricing Your Home:
Q: How much overpricing is too much?
A: Homes priced around 5% over typical market value may still attract buyers. But anything beyond 5-10% higher than comparable sales is considered clearly overpriced and risky.
Q: How can I tell if my agent says I’m overpricing?
A: If your agent provides market data showing your desired price is higher than recent sales of similar homes, it likely means your home is overpriced.
Q: What happens if my home doesn’t sell at an overpriced list price?
A: The vast majority of overpriced homes eventually sell for less than the initial asking price after one or more price reductions. Significant price drops can also deter buyers.
Q: Should I start high, expecting to negotiate down?
A: No. This outdated tactic often backfires. Smart buyers today immediately dismiss overpriced homes. You’re better off pricing properly right away to generate more interest.
Q: How much should I spend improving my home before selling?
A: Limit upgrades to market-expected repairs and focus on maximizing buyer appeal. Over-improving can lead homeowners to overprice trying to recoup costs that don’t increase property value dollar-for-dollar.
Q: What happens if I refuse to lower an overpriced home’s list price?
A: The home simply will not sell until you lower the price. Buyers have too much access to price data today to overpay. Refusing to negotiate reasonably risks not selling at all.
Q: Should I relist my home if it expires due to overpricing?
A: Delisting and relisting the home ‘resets’ the time on the market. But smart buyers will still see the prior listing history. It’s better to price properly from the start.
Q: How much over the asking price should I expect to receive?
A: In a typical market, offers tend to fall within 2-5% over asking. In a hot market, homes priced right can sell for 5-10% or more over list price as buyers compete.
Q: Is it better to price low or high?
A: Pricing too low can leave money on the table and limit demand, signalling issues. But pricing too high is even riskier. Research shows a competitive market price optimized for demand is best.
The Bottom Line
Selling your home is complicated enough without the burden of overpricing. Lower your risk and maximize your profit by properly researching and pricing your home based on current market data instead of aspirational figures. This will limit the risks of overpricing, like higher costs, losing buyers, and waiting longer to sell. With the right list price set from the start, you’ll be well-positioned to negotiate successfully and walk away with top dollar.
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