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30 Dec 2012
What happens when a home is overpriced? A lot. The implications of having a home that is substantially overpriced in the MLS can be tragic. Here is what I have seen . . . more than once.
A home was overpriced by almost 25%. In other words, it was listed in the MLS at a price that was above it’s fair market value (FMV) by 25%. How do I know this? History proved it. What happened to this home that was overpriced?
The home was listed for almost a year before the owner and listing agent reduced the price, but they did not reduce it enough. It was still overpriced by 20%. Apparently both the seller and the listing agent did not understand it was overpriced, but here’s the thing. Buyers get very good at recognizing when a home is overpriced. After all, buyers spend months looking at hundreds of homes online, comparing features and prices, and then they spend days looking at their filtered list of homes comparing prices again. Sellers do not spend nearly the time or effort doing all this personal research, so it is no surprise that buyers are most often more in tune with home prices than sellers.
At the end of the second year the house still had not sold. Because it was so overpriced, it had very few showings. The seller was frustrated, which is unquestionably an understatement. At the end of the third year the seller and the listing agent finally reduced the price to what it should have been three years earlier.
The house did sell six months later, which was three and a half years from when it was first listed. During that time the market declined by 10% more than it had since this home was first listed. The seller dealt with a lot of stress for three and a half years. The listing agent was clearly as wrong as the seller about the original listing price and the subsequent reductions. But the consequences of being so wrong were tragic for the seller for this overpriced home.
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