Pricing strategy has changed for sellers in the past few years, and it's important for buyers to know when they're being taken for a ride.
For homeowners looking to sell, pricing strategy is one of the most important decisions.
Unfortunately, many sellers fall into the trap of "wishful pricing"—listing their homes at inflated, aspirational prices rather than pricing based on market reality.
While one might assume inflated listing prices affect only the buyer, the pricing mistake affects both buyers and sellers alike.
Here's how sellers can avoid this pricing mistake, and how buyers can use data to back lower offers and avoid overpaying when facing aspirationally priced listings.
How to avoid overpricing your home
To ensure your home is priced accurately before it hits the market, your real estate agent should perform a comparative market analysis (CMA). A CMA is a detailed report that estimates a home’s value by comparing it to recently sold similar homes (comps) in the same area.
The CMA should analyze recent sales, not listing prices, for homes currently on the market. Looking at recent sales is the best strategy because it provides a clearer picture of realistic prices rather than hopeful pricing.
Gary Lanham, Realtor® and broker associate at Gary Lanham Group, says he encounters wishful pricing fairly often.
"The problem is that buyers are looking at today's market, not yesterday's market," he says. "Most sellers aren't trying to be unrealistic. They may be thinking about what a neighbor sold for a year or two ago, what they've spent improving the home, or what an online estimate says."
Steve Jolly, real estate broker and founder of NashvilleRealEstateNow.com, sees similar trends in the Nashville, TN, housing market.
“In Davidson County, roughly 1 in 3 homes listed in the last 12 months never sold at all, even counting relists,” he explains. He says most of those sellers weren’t being greedy; they were working from the wrong numbers, but nobody corrected them before listing.
Pricing mistakes cost sellers more than they might realize.
“Last year, our median price cut in Nashville was about $20,000, and more than half the sellers who cut still didn't sell, because the cut came after the market had already moved on," Jolly explains.
When Lanham encounters sellers who want to list their homes at aspirational prices, he shows them market data and asks them to look at it from the buyer's point of view.
“If the seller wants $900,000 and similar homes are around $825,000, I'll ask: ‘What is the buyer getting here that makes them willing to pay the extra $75,000?’” he explains.
"My job isn't to tell sellers what they want to hear just to get the listing. My job is to help them understand what buyers are likely to do once the home hits the market," he adds.
Lanham says that in today's market, with buyers having so much inventory to choose from, he generally will not take an overpriced listing.
Jolly sums it up: “Priced right, a home goes under contract in about 14 days at nearly full ask. Priced hopefully, it doesn't sell slowly; it doesn't sell, period.” He notes that's based on what he's seeing in the Nashville market.
(Realtor.com) How buyers can push back on inflated listing prices
Buyers shouldn't equate a home's listing price with the home's market value.
"A lot of buyers assume the listing price has somehow been verified. It hasn't. The asking price is simply what the seller is asking,” Lanham explains.
Jolly says the reason many inexperienced buyers assume a listing price is fair and accurate is that “everywhere else in their life, the price tag is the price. Groceries, cars, Amazon. Real estate is one of the only markets where the sticker is a negotiating position, and nobody tells first-timers that.
“List price is marketing. It’s the seller’s hope, not the home’s value,” he adds.
If a listing agent can't produce solid recent comps to support the asking price, buyers can use this to their advantage when negotiating pricing. Before making an offer, have your agent run comps to determine a fair offer price that aligns with the market.
Jolly recommends that buyers focus on closed sales from the past 90 days for the same property type and also look at the price per square foot and days on the market.
"Anchor your offer to the three most similar closed sales that are closest to you and let the seller argue with the market, not with you," he advises.
When presenting a lower offer, Lanham says, “I wouldn’t approach it as, ‘Your house isn’t worth what you think it is.’” Instead, he suggests: “Here is what buyers have recently paid for comparable homes, and this is how we arrived at our offer.”
Wishful pricing costs sellers time and money, and it can cost buyers even more if they don't push back. Lanham says buyers should be willing to walk away.
“Sometimes an overpriced home eventually comes down. That doesn’t mean the buyer has to pay the seller’s aspirational price in the meantime.”