All home owners think their home is worth more than it really is.  It’s understandable!  When someone moves into a house, it’s just a house.  But the longer the owners are there, the more they’ll make a house into a home.  The home will be part of many cherished memories such as children being born, growing up, career milestones, and so on.  So it’s very hard for home sellers to objectively assess their home’s market value on their own.

Some real estate professionals make the mistake of trying to win the listing by overpricing the home.  Their thinking is, “If the home owners already think it’s overpriced, why not simply agree with them and tell them what they want to hear?  Moreover, why would they list with someone who thought their home was worth significantly less than what they thought? Of course, if I get the listing and the house doesn’t sell, I can always convince them to lower the price, but at least I’ll still have the listing.  Once we lower the price enough, the home will sell”.

I call this the retail approach to pricing.  In retail stores, when an item is first introduced, it’s usually priced at the highest it will ever be priced at.  If the item doesn’t sell, it gets discounted.  The longer the item sits on the shelf, the lower its price will go.  In some instances, the initial retail price can differ enormously from the later price.  I recently saw an article of clothing at a high end clothing store priced at $395.  This was the item’s initial price.  I later found this item at a discount clothing store.  It still had the original price on it but it had been marked down several times.  I purchased this item for $39.95!

There are two problems with using the retail approach for pricing real estate.  If you’ve never proven a home’s market value to the sellers, you will often have a difficult time in convincing them to lower the price.  They are still convinced the asking price is market value, and a market expert (you) has confirmed this.  So when you can’t get them that price, you’ve shown yourself as incompetent.  They may think you’re not working hard enough to get that price.  They’ll start thinking about using another real estate professional.

The other problem with the retail approach is the signal you send to buyers when you show you’re willing to lower the price.  The more often buyers see you lowering the home price, and the more you lower it, the lower they’ll think you’ll ultimately go.  It’s like an auction, only the price is going backward.

You should always use the market value approach during a listing presentation.  Show the sellers a detailed analysis of what comparable homes in the area have sold for.  By doing this you’ll have proven the price you value their home at.  You’ll be able to stick by this price and ultimately get a better final price than if you used the retail approach.

I teach many more strategies on various aspects of the selling process in my Excelling In The Real Estate Profession course.  This course has been approved by the Registrar, REBBA 2002 to qualify for 9 credits.