What are exact reasons an owner would overvalue their home and how important is it to arrive at a realistic market price?
The reasons an individual might overvalue his or her home are numerous, but I just wanted to touch on a few. The main, and probably most obvious reason for a high valuation of one’s home is because the owner has become emotionally attached to the property. Becoming emotionally invested in a home is completely understandable, perhaps it was a couple’s first home after they were married or possibly it’s the home parents have raised a family in. Whatever the reason is, it is important for the owner to know that these reasons don’t usually add any value to a prospective buyer. There is an old poker adage that says, “ never fall in love with your hand.” What this basically means is the more attached you are to a hand, the harder it will be to fold such hand, even when you know you should. The same rule applies for a house, as an owner it is paramount to look at facts when valuing your home rather than sentimental value. Regardless of which brokerage / agent you decide on, please keep that old poker adage in mind.
The second biggest reason owners will tend to overvalue is because they know the exact cost of every repair and upgrade they put into the home. History shows that it is often difficult to recover all of the money spent on costly renovations. While aforementioned remodels will help add value, owners will often think they can get back the total cost of the renovations plus some on top. Sadly, it is rarely the case that owners can recover the entire cost of a renovation. Keep in mind that the above statement pertains to owners who are planning to actually live in the home. These factors do not include professional “home flippers” who buy a run-down property for cheap, quickly drop in some remodels and place it back on the market. It’s important to note that these professionals are highly experienced at flipping homes, can do work in a very cost effective / efficient manner, and can turn properties around extremely fast. It is unrealistic for most homeowners to think they can do the same.
Arriving at a realistic market price is probably the single most important part of selling a home, slightly edging out how a property is marketed. As stated earlier it is important to only consider factors that are going to be relevant to prospective buyers, things like location, bedrooms, square footage and prices of local comparables are all important factors to take into account. When using the proper items correctly a homeowner will usually arrive at a correct market price and the home should sell. However, if an owner arrives at a high valuation based on factors that aren’t relevant to the buyer, the home may end up not selling at all. The failure to sell a home, especially in a hot market like West Seattle or Normandy Park, is an absolute tragedy. West Seattle and Normandy Park are markets where homes tend to move very quickly, unless they are hugely overpriced. In a previous post we did write that currently in the West Seattle and Normandy Park markets owners could look to price on the aggressive side, but please note that aggressive and overpriced are not the same thing. Overpriced homes (Prices significantly higher than market price) will tend to sit on the market a very long time and will usually sell for less than if the owner had sold it at a competitive price in the first place. The reason being that the best window to sell a home is up 0-14 days after a home hits the market, afterwards buyers and agents begin to overlook the residence. Additionally, any offer received will likely be lower due in part to buyers possessing more leverage because there will usually be more pressure on the seller to accept an offer. Aggressively priced homes (Prices only slightly higher than market price) will still tend to move in hot markets, with all other factors being equal.
Those who decide to utilize an agent would be well served to find a very experienced and local agent who will give an owner an honest and accurate opinion for the fair market value of a home. Those who decide to go the for sale by owner route, which can usually prove to be extremely difficult but not impossible, be sure to consider tangible factors to give yourself the best shot to sell a home.
We hope this helps you owners out there looking to sell!