The Cost of Overpricing a Property in a Challenging Market

The Cost of Overpricing a Property in a Challenging Market

  • The CREM Group
  • 02/5/24

In the contemporary real estate market of Los Angeles – a landscape filled with all manner of residential property types, including luxury estate homes, high-end condos, multi-family apartments, entry-level new construction, and unique offerings such as listings under probate, foreclosure, or in need of renovation – determining the optimal price point for a property is paramount to a successful and lucrative transaction.

With the market dynamics perpetually shifting, grasping a realistic and actionable market value for a home is a critical part of the process. An accurate, well-informed price increases the likelihood of a swift and profitable sale and steers clear of the myriad pitfalls associated with overpricing.

For many sellers, however, it's tempting to set a home price above what the market can bear—the thought being to ask for the stars and, at the very least, happily get the moon instead. Unfortunately, this methodology often works in reverse. Ask for the stars in a marketplace where the moon is the ceiling, and you'll come away with nothing.

Space analogies aside, one can easily drift towards overpricing, buoyed by an emotional connection to the property or overestimating the home's enhancements. This leads to a road fraught with hurdles, ranging from lingering market presence to losing out on a coveted bidding war. Below, we explore the substantial costs of overpricing a property, guiding you toward avoiding this significant misstep in a challenging market.

The cost of overpricing in a challenging market

Embarking on the home selling journey with an inflated price tag instantly places you at a disadvantage, especially in marketplaces as dynamic as Los Angeles and Orange County. Overpricing stunts the initial excitement of a new asset hitting the market and can cultivate an ongoing series of negative repercussions.

Lingering in the marketplace for too long

A property that lingers too long on the market is a scenario every seller should seek to avoid. The Los Angeles real estate market has a large percentage of savvy buyers and investors. Overpricing invariably leads to a diminished pool of potential buyers deterred by a prohibitive cost who recognize a listing misaligned with its immediate marketplace. For those hoping or needing to sell a property quickly, the clock becomes an adversary as the time frame for selling grows exponentially, resulting in a lower final sale price.

Missing out on your home's window of maximum interest

A home comes with an innate value and a peak interest period, which are quickly overshadowed by a hefty price tag. A new property listing is at its most popular within its first week of going live, getting between 3.5 and 5 times more views that initial day than subsequent days. And after that first week, the dropoff can be dramatic. If you aren't getting inquiries, requests for tours, or even offers within the first seven days, the property is likely overpriced, and the golden window to capture buyer interest has been missed.

Risk of devaluation

Overpricing a property risks being perceived with skepticism, potentially carving a pathway to devaluation. When a home is priced significantly above its immediate market area or simply asking for far more than what it appears to be worth, it's a stark contrast against those properties whose value is more accurate and apparent. Inevitably, buyers will start comparing properties and draw unfavorable comparisons between yours and those more in line with the realities of the market. Ultimately, a property perceived as less than that of its competitors will quickly sour its reputation, many times forcing a seller to lower its price, even below its actual value.

Create the narrative of a problematic property

Overpricing may inadvertently earn a home a reputation as a troublesome asset. When noticing a property languishing on the market, potential buyers could harbor reservations about hidden issues or overestimated value. The best way to overcome this is for buyers to experience the home themselves via a problem. The problem is that homes with lengthy listing timeframes are universally viewed as problematic properties, and buyers will steer clear of what they perceive as a bad investment.

Foregoing the potential for a bidding war

One of the more underappreciated aspects of pricing a home is that slightly below-market listings regularly attract a lot of attention from buyers chasing a great deal. A carefully crafted pricing strategy can foster an environment ripe for a bidding war, an event that substantially boosts a property's final sale price. Overpricing from the onset dampens this possibility, as buyers are less inclined to engage in a bidding war for a property perceived as overvalued.

Encountering appraisal issues

An inflated price tag invites scrutiny, often leading to appraisal problems. Should an appraiser assess the property's value significantly below its asking price, it creates a gap between expectation and reality and can place unsuspecting buyers in a bind. Lenders won't cover the massive gap between a low appraisal and an inflated sale price. The buyer is on the hook for the difference, and if you're unwilling to negotiate a lower price, it will quickly lead to a deal falling through.

Inevitability of a reduced list price

The irony of overpricing is that it often comes full circle. Having endured one or more of the above scenarios, the seller reduces the original asking price to align with the market dynamics. This not only results in unnecessarily lost time but an acknowledgment that the home was, in fact, overpriced and was avoidable with a more realistic and well-thought-out pricing strategy at the outset.

How to steer clear of overpricing

In a market as nuanced and challenging as Los Angeles, avoiding the urge to overprice can ensure a quick and profitable sale. But it does require a level of restraint, emotional detachment, and relying on expert guidance to formulate an accurate and rewarding price strategy. Here are several tips to help you navigate how to set the best possible list price for your Los Angeles or Orange County home.

Past purchase price doesn't indicate current market value

Markets are cyclical. While homes often appreciate, and your original purchase price might carry sentimental and financial significance, what you paid a few years ago may not resonate with the present market—especially in a time of considerably higher interest rates. It's better to understand the current market influences to arrive at a value that's appropriate for the factors of today.

The truth about renovation ROI

Renovations might enhance the appeal and functionality of your home. However, expecting to recoup the entirety of your investment expenses is a common home-selling myth. Buyers are likely to appreciate a well-maintained home but might not be willing to pay a premium equal to total renovation costs, especially if upgrades fall outside market norms. Factor renovations judiciously into your price strategy, aiming for realistic market value rather than the total renovation investment.

Respond to market feedback

Being receptive to market feedback is vital to avoiding overpricing. If your property garners little interest or low attendance at viewings—online or in person—it might signal a need to revisit your pricing strategy. Waiting too long to adjust the price leads the property into the overpriced bracket, consequently losing its appeal to prospective buyers.

Keep emotions at bay

It is perfectly natural to carry a deep emotional connection with your home, especially when the time comes to say goodbye to it. However, allowing the emotional bond to dictate pricing leads to an inflated asking price. As a result, your love will quickly turn to disdain as you hold the property far longer than anticipated— emotionally and financially. Approach the pricing process objectively, viewing your home from the lens of a potential buyer, with an explicit focus on present market dynamics and not personal sentiments.

Collaborate with experienced real estate professionals

Entrusting a seasoned real estate professional with the sale of your home can be a safeguard against overpricing. Leveraging their expertise, market insights, and experience, real estate professionals can guide you in establishing a price point grounded with a detailed comparative market analysis, which reflects the actual market value of your property.

Connect with a trusted team of experts

With expertise in general California real estate probate, conservatorships, trusts, bankruptcy, and receiverships, and hundreds of satisfied clients, The CREM Group has the knowledge and experience to help guide you through the probate real estate process. The CREM Group's proven track record of success in dealing with these hyper-specific sales in the real estate markets of Los Angeles, Orange County, and the surrounding areas will ensure your probate experience is highly successful.

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