Spencer Raskoff, the CEO of Zillow, wrote a book called Zillow Talk. In it, he devoted an entire chapter to analyzing pricing. He cited the biggest mistake home sellers make is leaving room to negotiate. He writes that you should not price your home above the fair market value.
Here’s an excerpt:
Understandably, most sellers are more afraid of underpricing than overpricing. After all, no one wants to sell his or her home for less than it’s worth. Indeed, that’s why some sellers purposely overprice. They assume that by listing high, they’ll somehow drive up the sale price and net some extra cash. But in reality, this strategy rarely works. In fact, it almost always backfires.
Raskoff uses Zillow statistics to demonstrate that overpricing almost always leads to a lower final sales price. His recommended antidote is a price cut down to fair market value or below it: “… the best thing to do when you’ve overpriced your home is to take your lumps and cut the price all the way to its true market value.”
If you choose not to follow this pricing strategy and you overprice your home to leave room for negotiation, it will likely take you twice as long to sell your home or longer and you’ll likely sell for 4% less than you otherwise would have. The big takeaway is that the closer you price your home to fair market value, the higher your final sales price will be. Our data sample is much smaller than Zillow’s, but we’ve reached a similar conclusion.
If you follow Raskoff’s advice and make a price change, we have a couple additional recommendations for you:
- When you change your price, you should also swap your main picture with a different picture. That way buyers who have already clicked on your home will be more likely to click on it again.
- If you are near a price threshold, make sure your new price falls just below it. Real estate portals are typically set up with $50,000 and $100,000 price increments in their filters. Because of this, dropping your price from $405k to $399k will induce a lot more activity than dropping it to $402k.