A very common seller concern, understandably, is selling the home for too little money.  Oftentimes they want to price their Silicon Valley home so that they “have room to negotiate” and “don’t leave too much money on the table”.

The trick is in figuring out how much room you really need to negotiate and at what point you’re dramatically hurting your chances of selling by overpricing. Where’s the tipping point?

Why do home sellers sometimes overprice their homes?Let’s do some mythical math – let’s say a 4 bed, 2 bath home in Los Gatos or Almaden Valley is worth approximately $1,000,000 (depending on terms like “As Is”, the loan type or all cash, free rent back, etc., the probable sales price range might go from about $975,000 to $1,025,000).

If the home’s likely value on the market is worth about one million, many agents will suggest listing the home at about $999,000 in order to get buyers who may not search over the $1 million mark and to drum up interest, traffic, and hopefully at least one offer.

Saavy and experienced agents know that most homes sell fairly close to list price in today’s market (Almaden Valley houses are selling, on average, at 99% of list price and Los Gatos homes are selling at an average of 97% of list price), so most would not want to go beyond that percentage – whatever it is – since we also know that most homes are not selling.  Five percent over probable list price is ususually the upper limits of what may be wise positioning.   In the case of our mythical million dollar home, the highest that some agents would see as potentially viable might be $1,050,000 – but many others would not venture that high, feeling it creates a big risk of the home sitting on the market too long and ultimately selling for much less if the home is perceived as shopworn. They might place the upper limit at $1,025,000 or close to there.

Sellers, though, sometimes see the numbers but want to list their home higher – perhaps 10% higher or more over probable market value.  Why is this so often the case?

Sometimes it’s a misperception of how to get the highest price for the home.  “I’m not in a hurry… I can wait for a good offer” is a common retort.  The fallacy is that waiting will bring more offer – in most markets, it will bring less. The exception is in a rapidly appreciating market, waiting may cause the market to simply catch up with you.  If you’re really not in a hurry, wait until the market is where you want or need it to be before selling.  Putting your home on the market and waiting 4 or 6 or 12 months for it to sell is most often frustrating, not fruitful.

Sellers may hire the agent who tell them the highest price. If you were to interview 3 or 4 real estate licensees and ask about the market value of your home, they should all be fairly close if they’re looking at the same comps.  If all but one are in a “band” and one is much higher, beware.  That agent may be attempting to get your listing by providing you with a price that can’t truly be justified.  In the business, we call it “buying the listing”.  (I have lost a few listings by simply telling the truth about pricing, only to see the home get listed at a crazy high price – and never sell at all.)

Another reason seller may err with overpricing  is that being emotionally attached, home owners occasionally feel that certain improvements or changes that they made create more value than most buyers will accept.  For instance, if your home is wallpapered in very, very expensive and imported or antique wallpaper but the buyers hate it, it is not an “improvement” per se.  Same with high quality but out of favor colored carpets.   Feeling very attached to a house, its memories and meaning can make it very difficult to view selling the house as a business decision.  But to maximize what you take away from the property financially, that’s what’s needed.  At the extreme, some sellers may become defensive and angry if they ask a Realtor or an appraiser “what’s my home worth” and the answer doesn’t measure up to expectations.

It is very important to have the assistance of professionals who can give you unbiased (neutral) information & advice.  A dangerous plan is to tell your agent what the home should be worth and then insist that he or she agree with you under pain of not being hired (or getting fired).  As a fiduciary, your real estate agent should give you correct information – even if it’s not what you want to hear.  Ultimately your best help in pricing, and hopefully in working with an offer when it comes, will be by teaming up with someone knowledgeable who can give you good information, data, and advice so you can make the most of whatever market your home sale happens to be in.

To answer the original question, then, agents suggest pricing a home at market value because that’s one of the key things you need to do to increase the odds that your home will sell.  They are providing good advice.  This alone – pricing it “at market” – isn’t enough to sell a home, but it’s probably the most important part of any marketing plan.