You’re great, smart, and people just love you. A little praise has already taken you far in life, and now it’s time to apply it in pricing your home for sale.
What’s wrong with a little self-confidence when attracting a buyer, anyway? Nothing. But watch out.
Here are six things that overconfident home sellers do when pricing their home, and some helpful tips on how to avoid them.
#1: Trust themselves more than they trust the market
If you’ve been on social media sites ever in the past ten years, you might have seen messages to the effect of: “Your worth depends on how much you value yourself,” and “Speak about yourself the way you would about a prized possession.” This advice certainly has merit, but sadly, little value in the pricing of your home.
Houses have value only in the amount that a buyer is willing to pay for them. You can tell yourself your home is worth a million dollars, but statements of self-affirmation will do little to attract a buyer.
#2: They ignore the endowment effect
Studies show that when a person owns something, they mentally set its value at a price much higher than what they personally would be willing to pay for it. This is called the Endowment Effect. Say you have your eye on a carbon frame road bike which sells for $2000, but wait to purchase until you see a sale price of $1800. A year later, you want to sell this bike, which is worth—to you—$2000. But is it worth that? Of course not.
1) You weren’t willing to pay $2000 for it.
2) You got to own it new (or newer) than it is currently.
3) The experience you give the buyer—a garage sales-location versus a brick-and-mortar store—matter.
Homes are similar. Homeowners often value their own home at a price that is substantially higher than what they themselves—let alone the market—would be willing to pay for it. The reasons are the same as the three mentioned above. 1) Sellers want to feel like they are getting a good deal. (But so do buyers.) 2) Every home is older when it goes on sale than it was when it was purchased. 3) The experience of the sale matters, and current homeowners are not necessarily more talented than previous-owners at showing off the home.
#3: Misunderstand that Homes Don’t Go Up in Value, Property Does
Homes are like bikes. The older they are, the more wear-and tear they have. In fact, should you happen to own a rental home, you know that you can write-off the depreciation of the rental annually. This is because, as years goes by, the units which you rent out will eventually need to be remodeled extensively, just to keep them at the same value to renters. It’s even possible for a building to lose so much value that it is a complete loss, like a car that is worth less than the money needed to repair it. A building like this is generally torn down and replaced.
Property, on the other hand, tends to go up in value at a rate that reflects inflation, with the big wild-card being location. If the location in which you purchased becomes more desirable, you will gain equity. If the location becomes less desirable, you will lose equity.
#4: Price Your Home Based on What’s For Sale
Okay, so you’re ready to set your home value based on the market. Good for you. You look at homes on sale similar to yours and set your price to match.
Here’s the problem: The houses staying on the market longest—many of which you noticed specifically because of the lengthy time you’ve had to process that they were on sale—are overpriced.
House, like other retail items, do not always sell at asking price, as you may have noticed when you waited for a sale on the bike. You need to see what homes are selling for, not what over-confident homeowners are asking for. Appropriately-priced home sell quickly in a seller’s market like the one Utah is experiencing, often going under contract in days.
Getting data on purchase prices is trickier glancing at home sale prices, but certainly not impossible. Start with a desktop appraisal, like the one Homie provides free to all its clients. Once you’ve got purchase price info from comparable homes, check out our step-by-step details on setting your price.
#5: They over emphasize the value of their net on the home.
Imagine you fall in love with a house you can only purchase if the home you currently own sells for not a penny under $300,000. So you set that price as your asking price and won’t budge.
Whoa, not so fast. Consider the opposite scenario. A lovely couple wants to buy your property but can only afford to pay $270,000 it, not a penny over. Will you sell it at that? Not if a second family offers $290,000. Just as more than one buyer exists, more than one house is for sale. Buyers will bite on your house if it’s a reasonable deal compared to others. They will not pay an extra $10,000 to do you a favor.
#6: Expect 100% Return on Upgrades
Just as road bikes lose value the instant they’re used, so do flagstone patios, granite countertops and spring maple laminate floors. Even if your upgrades are perfectly marketable, they still depreciate in value over time. In valuing your home, you shouldn’t expect to retrieve more than 80% of your investment.
Setting your price is giving your best guess at what the market will pay, with helpful tools like Homie’s desktop appraisal to guide your thinking. If you set low, you are likely to get multiple offers that may drive up the price of your home as it goes to auction. If you set high, your home will languish on the market without offers until you adjust the price. React to the market and you have a high chance of selling your home in a reasonable amount of time.
If you really want to make more money on the sale of your home, visit Homie to check out our services and technology, which replace real estate agents and don’t come with commissions. Happy home-selling!