Asking price of property still crucial even in a hot Sedona Real Estate market!!

Several agents have recently commented to me that some sellers are getting ahead of the market by significantly over-pricing their homes in anticipation of future price increases; this is a phenomenon that is commonly associated with strong markets, as we’re experiencing now. While we all want to maximize the value of our assets, this strategy can backfire in a couple of ways on the homeowner, so it’s worth exploring it a little deeper.
Most experienced agents recognize an over-priced home when they see one and typically don’t put it on their list of “homes to show” when they have a buyer in that price range, unless they have no other choices. This is a very logical, economic decision – why show such a home to a ready, willing and able buyer if it compares poorly to other available homes?
On the outside chance that a prospective buyer does make an offer on such a home, and assuming a loan is involved, the next obstacle is the appraisal. The days are gone when an appraiser would oblige a client by delivering an appraised price to suit the buyer or seller – The Dodd Frank Act took care of that. Now, ordering an appraisal is an anonymous process via the lender and the lender is specifically prohibited from trying to influence the outcome. Should the appraisal come in for less than the contract price, the buyer has the ability to cancel if the seller won’t reduce the price in line with the appraisal. So, what has been gained?
On the other hand, should you be lucky and get a cash buyer who is willing to waive an appraisal, you could pull off the sale to your satisfaction. As a broker however, with fresh memories of the “bubble market” of 2006 and 2007, buyers paying more than appraised value is a scary thought and I would have to say a sign of an over-heating market. For sellers, it could be a sign to sell at the top.
Going back to my opening thought above, how do you know when your home is over-priced? The simple answer is that you’ll get few, if any, showings. To remedy this, ask your agent for an updated Comparative Market Analysis (CMA in the jargon) which shows sold homes similar to yours in location, size and age, or other listed properties that you’re competing against. Review the MLS photos of these homes with your agent and go drive by them – your eyes will be opened!
Next, rather than lowering the price in small steps, go straight to market value or a bit below. Buyers watch homes for sale that they are interested in and many small reductions result in buyers just waiting for the next one – there’s no incentive to act now. It’s also a demonstrable fact that the longer a home is on the market, the lower the final selling price. On the other hand, if you are highly motivated and want to sell really quickly, price it 10% below market.
Finally, a well-priced home brings pleasant surprises to the seller. In a market like ours where there’s a shortage of inventory, a home priced to market will bring lots of prospective buyers and can often result in a sale above asking price. Realtors even have a special form for this situation, it’s called the “Multiple Counter Offer” form and it basically asks the buyers to give you their highest and best offer, at least one of which is usually above list price and is a cash transaction – oh joy!
This week’s Real Estate Review was written by Andrew Brearley…