How did this homeowner lose $105,000 by overpricing their home in a shifting market? Today, I’ll explain.

Sometimes, pricing your home above market value can be okay, because the market sometimes improves to that price, and sellers get an offer close to what they’re asking for.

However, in a declining market where the pendulum has shifted in the other direction, that can cause issues for the seller. The pressure on demand is slowing values, and you need to be very careful not to fall behind that shift.

Here’s an example of what I mean:

In the market leading up to the real estate recession of 2007 and 2008, there was a homeowner I knew who decided to price their property a little higher than its market value. The market said the home was worth about $375,000, and the homeowner priced it at $450,000, knowing that most homes were selling for top dollar in that market.

The problem was that the recession had started, and the bottom of the market fell out; after about a year of marketing the property at $450,000, the seller’s agent (not me) decided they should reduce the price to $400,000. At that time, the year was 2009, and the property’s inherent or market value had dropped to $350,000 or $325,000. So even though the seller had reduced the price, it was still higher than the market value.

“Make sure that when you contact your Realtor to sell your home, you get a thorough analysis on the home’s value.”

Another year went by, and the inherent value of the property dropped closer to $300,000. The seller reduced the price yet again, this time to $350,000. By this time, the public was beginning to wonder what was wrong with the property. Why hadn’t it sold? A home becoming stagnant can really hurt a property’s inherent value.

Ultimately, this property ended up selling for a little less than $275,000 in the recession. Had the seller priced the home at $375,000 in the beginning, the price the data showed the market would support, it probably would have sold during the first year, possibly even in the first couple of months. However, because they chose to price it too high, they had to chase the shifting market, and they ended up selling it for about $100,000 less than its initial market value.

The lesson in all this is to make sure that when you contact your Realtor to sell your home, you get a thorough analysis on the home’s value. Look at the data for what other properties like yours have been selling for, and also ask whether the market is trending up or down. This will help you stay on top of the market, rather than chasing it.

If you have any questions about this or other real estate topics, please don’t hesitate to reach out to me for a free home value estimate of your home. A member of our team will follow up with you and take good care of you.