Pricing a Home too High
(First part of How
to Sell a House)
By Steve Gillman - 2006
One of the surest ways to make less money in the end is pricing
a home too high. Now, it is obvious that you will make less if
you ask too little for your home. What isn't so obvious is that
you will also make less money if you ask too much. To see why,
read the following story.
Pricing too High - A True Story
John (not his real name) listed his home in Michigan for sale
for $229,000. He moved to Texas, leaving the home empty. He had
to leave the electricity and gas on, to keep the home heated
and presentable, as well as to keep the pipes from freezing in
winter. The cost of the utilities, plus the property taxes and
insurance, added up to about $7,000 per year.
If I remember correctly, his remaining mortgage loan was only
around $100,000, at about 8% interest. The interest, then, was
only another $8,000 per year. Altogether it was costing him about
$15,000 per year to hold the home. This got expensive considering
that the house didn't sell for more than two years. I estimate
he spent about $34,000 to hold on until it sold.
What was the problem? The house probably had a market value
of $180,000 when he first listed it for sale. He had over-built
for the neighborhood,and thought he could sell a home for $229,000
in-between homes that were selling for under $100,000. The result
was the long wait.
I came into the story after about a year and a half. The listing
had expired, and the owner wanted to try a new agent. In the
meantime he had rented the home for a while to try to cover some
of the costs. He took in a few thousand dollars and received
that much in damages and wear-and-tear on the home. It wasn't
looking its best.
I convinced him to list the home for $195,000. This was still
too high given the current state of the house. After six more
months, it finally sold for $175,000, a full $54,000 less than
what he originally expected. At that point he was just happy
to be done with it.
The moral of the story: Pricing a home too high can really
cost you money!
If he had originally priced the home at $185,000 or so, he
probably would have sold it for $180,000 within a couple months.
This is more than he eventually sold it for. He also would have
spent only a couple thousand dollars holding the home, instead
of $34,000. In the end, he would have been at least $30,000 further
ahead. In other words:
Putting too high a price on his home cost him at least $30,000!
That is an expensive mistake. Fortunately, even though it
is a true story, it is also an extreme example. Most of the time,
setting your price too high will only cost you a lot of stress,
time and a few thousand dollars or so.
The book continues here: Pricing
a House too High - Specific problems with high prices.
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