We see it everyday- a home is listed shooting for the moon, a price that will never see a contract- but who does it hurt? In the case of Indiana County, it’s hurt 50% of sellers.
Lets look at a hypothetical situation to better understand the issue:
A seller sits down with an agent to list their home. During the conversation, a listing price is agreed to that is 20% above the actual market value. This could happen for a few reasons:
The seller has a mortgage that is far above the current market value and they are hopeful to get a sale price that covers the mortgage
The seller has an expectation that is far above market value
Complexity of the property made it difficult for the agent to analyze
Inexperienced agents with a focus on commission rather than educating the seller regarding market trends
In the case of a For Sale By Owner, the seller may lack the experience to price their home
The home is on the market, and buyers begin to search:
Buyers who are in the price range to shop for the subject’s market value + 20%, look at the subject and see that it is far inferior to other properties, and walk away.
Buyers who can afford the subject property at the market value may never look at it, because it is listed outside of their price range.
The home sits on the market. In the case of Indiana County and portions of Armstrong County where these trends have been seen, they sit for a long time. The normal 3 - 6 month marketing time passes and then 9 months and then 10 months. (Crickets)
The seller and agent get serious as the listing contract nears expiration. They begin/continue to drive the list price down. They finally get to the market value.
Buyers who can afford the property finally see it within their search parameters.
Buyers/Agents see the marketing time and price decrease history and assume there is something wrong with the property OR that the seller is desperate
Buyers, holding all the cards in the deal, finally make an offer.
Initially listing the home well above market value, often leads to the home selling below market value. In the case of Indiana County this, among other factors, has resulted in declining home prices in rural market areas.