The Dangers of Overpricing in the San Francisco Real Estate Market
June 28, 2020 Source: Compass
While overpricing almost always has negative ramifications for sellers (lower sales prices than if
priced correctly, to begin with),it can provide opportunities for buyers who carefully track price
reductions and react accordingly. Such buyers will typically face less competition from other
buyers – often no competition, which eliminates any need for overbidding – and allows for more
aggressive negotiation of the purchase price. Across Bay Area markets, price reduced properties
consistently sell for a lower average dollar per square foot values than homes that sell quickly.
Fair market value is that price a qualified, reasonably knowledgeable buyer is willing
to pay, which a seller, not under duress, is willing to accept after the home has been
properly exposed to the market.
Neither agents nor sellers determine market value: Only the market – willing and able
buyers -- determines market value. Agent and seller work together to create a plan –
which includes pricing, preparation, and marketing -- to maximize the conditions that
reliably achieve the highest possible sales price.
The vast majority of buyers will not make offers on homes they consider significantly
overpriced. Either they don’t want to waste their time, or are uncomfortable with
possibly “offending” the seller. In any case, they simply move on to other listings.
Well-priced homes create a sense of urgency in the buyer/broker communities to act
quickly with strong, clean offers, and often lead to competitive bidding between buyers
– which is the most likely way to increase the sales price.
Overpricing wastes the optimum moment of buyer and broker attention: when it first comes on
the market. This moment cannot be recaptured.
Overpriced homes kill any sense of buyer urgency and take much longer to sell, which then
significantly reduces value in buyers’ minds: “There must be something wrong with it if it hasn’t
sold by now.” It almost always eliminates the possibility of competitive bidding.
Overpricing helps sell competitive properties since they stand out as good values in comparison.
If a listing has inadvertently been overpriced, the sooner it is recognized as such and the price
reduced, the smaller the negative impact. Price reductions must be big enough to regain the
attention of buyers and their agents – typically, at least 5%.
In order to win the listing, some agents suggest a list price considerably higher than what they
believe market conditions and comparable sales justify—because they believe this is what the
seller wants to hear. This is called “buying the listing” and is a violation of the fiduciary duty of
honesty that an agent owes their client.
• Price it right to begin with.
• Prepare the home to show in its best possible light.
• Implement the most comprehensive marketing plan possible.
• Hire an agent who knows how to negotiate effectively on your behalf, and manage the
disclosure and due diligence processes.
The difference can add up to tens or even hundreds of thousands of dollars.
Data from sources deemed reliable, but may contain errors and subject to revision.
All numbers should be considered approximate.