Why Is the Negotiation Gap So Important In Pricing Your Home?

When pricing your home, it’s important that you stay within the negotiation gap. If you don’t, you could lose out on a lot of money.

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What effect does low inventory and high demand have on pricing in our market? The short answer is it allows you to get a higher sale price for your house than you would’ve been able to last year.

There’s something I want to caution you about, though. Every single time I sit down with a homeowner and ask how much they want to pad the price of their house to leave room for negotiation, I get the same answer—10%. In this market, the reality is that you only need to pad the price by a little less than 3%. 

If you overshoot your home’s market value by 10% and your margin of error is 3%, that means you’re 7% over the mark. 3% goes into 7% a little more than two times, meaning you’re more than twice your allowable margin of error. If you remember your grade school math when it comes to calculating percentages, you’ll know that twice of what you need translates to 200%.

In other words, you’re more than 200% in excess of your margin of error, or what I call “the negotiation gap.”

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If you price your home over the negotiation gap, you’ll likely lose money on its sale.

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When you come in with numbers this high, it drives your home’s time on the market way up because you have to keep reducing the price until it’s back within that 3% margin. On top of that, buyers will assume there’s something wrong with your house because it’s been on the market for so long, so you’re bound to get less money for it than if you priced it within the 3% margin to begin with.

If you’re thinking of putting your home on the market, you won’t be able to draw the competition for your house you need to get a good price if you’re 200% over the margin of error. Even if your house looks like a million bucks, it’ll be too far outside of what buyers expect in terms of price.

You can save yourself this trouble by working with an agent who can figure out the numbers and help you step into the market intelligently. If you’d like to know the math on your home, don’t hesitate to give me a call. I’d be happy to help you.