At any given time, there are plenty of buyers in the market looking for newly-released properties. As a seller, isn't it in your best interest to attract as many buyers as possible? Where does setting the price too high fit into that picture?

As most genuine purchasers will see the property within the first two-to-three weeks of it coming onto the market, it is vitally important to price it correctly from the start.

Setting the price too high...

In my experience, sellers make the mistake of insisting that their property ought to be offered to the market at a price (slightly?) higher than the current market value, in the hopes of increasing their profit margin. Or they might argue that buyers make lower offers anyway, so they might as well start by listing the property high(er).

Here are the 6 most common reasons as to why setting the price too high does not work:

Buyers purchase property by comparison...

If the seller is asking too much compared to other available properties on the market at that time, buyers will either discard the idea of making an offer on the property or make an offer far below what it is actually worth.

Buyers rationalize that if the sellers are being "ridiculous" in their asking price, they have the right to be equally ridiculous in the price they offer.

Negative perception of the property...

Overpriced properties stay on the market for far too long.Why would you as a buyer even consider such clearly overpriced properties?

As buyers see the property advertised over and over again, they will start wondering if there's something wrong with it.

Forced to act drastically or wait for change...

The seller will now either be forced to drastically reduce the asking price to reactivate the market interest. Or the seller can hold out until the market picks up again or inflation catches up and the inherent value of the property increases.

Perception of desperation...

As time passes, buyers assume that the seller is getting desperate and will start making even lower offers, often resulting in the seller getting more and more agents working the property, all on a non-exclusive mandate basis, likely with different listing prices, leading to overexposure and eventually look even more desperate.

Misplaced loss of confidence in the real estate agent...

The outcome of this fiasco is that the seller loses faith in the agent and the company (broker). After all, despite having done all the necessary marketing, the current agent was not able to get the right, able and willing buyer!

The mandate expires and a new agent is appointed, who ends up signing the new mandate at the true value of the property.

The final outcome of of overpricing...

Buyers see the same property on the market. This time, it is reduced in price. Once again. Buyers are quick in picking up on that downward pricing behavior and start making low-ball offers. Eventually, this will lead to the property selling at levels far below the original true market value.

As a rule of thumb, the listing price of the property ought to be within your Comparative Market Analysis norms and it should offer reasonable value for your area. A correctly-priced property (in South Africa) currently sells within 1 month, whereas an overpriced property will easily take 6 months and fetch 20% below market value.

So, the next time a seller suggests "testing the property at an initial higher listing price", inform him about the above list and tell him straight that setting the price too high just doesn't work!

What are your experiences with dealing with overpriced properties, either from a seller or agent's point of view?