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Educating Sellers about Market Value

By Rich Schiffer

Real Estate Agent

January 25, 2007 04:32 AM

Sellers are often affraid that they are going to get less money for their home than it is worth. So in their minds, the best thing to do is price it high, so when they accept a lower price, they will "be ok with it." This leads to properties that get few showings, spend many days on the market, and many headaches for sellers and their agents, as they try to market a home to a consumer that is likely looking in another (lower) price range.

To address this, we need to better educate our clients.

Someone once said, "Use your powers of education to bring them to their senses, not to their knees." That is what is needed here.

Another applicable quote (paraphrased from Rosalyn Carter): "A leader takes people where they want to go. A great leader takes people not neccessarily where they want to go but to where they ought to be."

We need to educate sellers to bring them to their senses, and get their asking prices to where they ought to be.

Here are somethings to keep in mind when educating your sellers:

It is impossible to sell a home for more than the market will bear. This is rather obvious. The selling price IS what the market will bear.

Not so obvious, however is the flipside of this concept:

It is likewise impossible to sell a home for less than the market will bear.
Let me explain: If a home is priced lower than it "should be" multiple buyers show up and bid the price right back up to where it "should have been".

Ultimately, it is not an appraisal, CMA, or list price that determines the market value of a home. The market value is the highest price that buyers are willing to pay for it. So in a sense, you can only accurately tell someone what the market value was as of the last sale. The only thing that can tell what the current market value is, is a signed Agreement of Sale.

Some related articles can be found here:

The Problem(s) of Overpriced Listings by Deborah Ryman

List to sell or list to fail!! What will it be? and What is the "Right Price"? by Bryant Tutas

Is it all about the price? by Christina Ethridge

What Price do you start with? by Linda Mardi

Pricing Under Market Value? by Vanessa Plante-McDonald, AA, BS, MBA

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Monika McGillicuddy

Berkshire Hathaway HomeServices Verani Realty - Hampstead, NH

Southern NH & the Seacoast Area

Great reminder Rich. I think REALTORS often have a hard time taking control of the price issue! Thanks for linking the other articles as well.

Jan 25, 2007 05:01 AM

Rich Schiffer

Swarthmore, PA

Referral Agent, e-PRO

Monika - Thanks. I agree with you that taking control of the price issue can be difficult. Too many agents too often fall into the trap of telling the sellers what they want to hear. Invariably what they want to hear is a high price. By being straightforward about pricing with your sellers, you will not only educate them, but you will also show them that you are out to earn their business, not "buy it."

My thanks go out to whomever gave me the "Gold Star."

Jan 25, 2007 05:41 AM

Darryl Glade

RE/MAX N.O. Properties - New Orleans, LA

New Orleans Real Estate

Rich,

This is a very topical conversation for my market, New Orleans. Many sellers in New Orleans have an inflated price opinion on their property. It is now very important to educate your sellers on exactly what is going on in their market. I use a program that takes our MLS information and creates an easy to read table or graph. This really help sellers visualize the competition that they are up against and typically helps get the most appropriate list price.

Jan 25, 2007 05:47 AM

Netta Blackwood

La Rosa Realty - Kissimmee, FL

REO/BPO Expert

Rich, your topic said it quite loud and clear. Sellers need to be educated. Thanks for giving us a refresher course.

Jan 25, 2007 06:49 AM

Kaushik Sirkar

Call Realty, Inc. - Chandler, AZ

Educating sellers is one of our biggest roles! If done correctly, it leads to listings that are priced appropriately and that sell quickly!

Jan 25, 2007 06:53 AM

Joe Gomez

Realty Executives of Treasure Valley - Eagle, ID

Hey Rich , pricing a home at what the market will bear is not only good sellers representation but shows that you have talked your sellers about what is real right now . Overpricing & then compensating with alower offer wastes too much time & money !

Jan 25, 2007 07:25 AM

Amber Bourland

Ozarks' Independent Realty - West Plains, MO

In my area, it's common to see houses hit the market 20-30% higher than they end up selling for. 6 months plus is the average marketting time.... In this case, I think it's the agents who need the education! I've known sellers who tell the agent what they really believe their home is worth. The agent convinces them it's worth more than that, it gets overpriced, and sits... the homes usually sell closer to the owner's figure than the agent's!

I think it's pitiful when so-called professionals can't even estimate the market value better than the "uneducated" public!

Jan 25, 2007 08:19 AM

Gary J. Rocks

Juba Team Realty - Jefferson Township, NJ

Rich

How would you approach a stubborn seller and ask them to reduce the price of their home? What methods do you use to convince them they are over priced?

Jan 25, 2007 08:25 AM

William Collins

ERA Queen City Realty - Scotch Plains, NJ

Property and Asset Management

Rich,

Thanks for the post. That fully executed sales agreement is the winning ticket!

Jan 25, 2007 08:34 AM

Rich Schiffer

Swarthmore, PA

Referral Agent, e-PRO

Gary, If they are really set on an asking price, I would show them a list of homes that actually sold at the price they want to be at. I would highlight for them the features that those homes had that theirs does not. That way they can see exactly what buyers in that market expect to get when they pay that price. The next thing I would do is show them a list of all properties actively on the market with the same number of bedrooms and bathrooms, sorted in price order, lowest to highest. Then, highlight the lowest 5 priced homes in green and the highest priced homes in red. I tell them that when a buyer is looking at a home, this is what they see. The ones in the green zone are going to be looked at first. The ones in the red zone are going to be looked at only after all the others. I tell them that the more homes a buyer looks at before they see yours, the more chances there are that they will buy someone else's home. It is a competition, like many other aspects of retail business. The buyers shop around for price before they look for quality. You need to price your product (your home) in a range that the buyers are shopping in if you want to get their business.

Jan 25, 2007 09:14 AM

John Novak

Keller Williams Realty The Marketplace - Las Vegas, NV

Henderson, Las Vegas and Summerlin Real Estate

It's so important that sellers understand how the market affects price. Too often sellers dismiss a downward trend in the market and try to rationalize that their house is the best one of all. That often results in them chasing the price downward, and accepting an offer that is lower than where they should have started in the first place.

Jan 25, 2007 09:21 AM

Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

Good information, Rich. This is especially difficult in this market, and there are still people out there who refuse to adjust to the reality. Clearly the FSBOs are not getting this advice but you have to wonder about some of the listings - are the sellers ignoring what they are being told, are the agents NOT telling them, or are the agents saying they can get the high price? PLus there are many examples out there where sellers have tried the high number then try adjusting a few weeks later and it still isn't working. Duh!

Thanks for your post.

Jeff

Jan 25, 2007 10:24 AM

Christy Powers

Keller Williams Coastal Area Partners - Pooler, GA

Pooler, Savannah Real Estate Agent

That's the hard part, I am finding it hard to know myself. We had a brief period where time seems to have stood still in some areas....the only comps are from the boom

Jan 25, 2007 03:23 PM

Ann Guy

NA - Allentown, PA

Rich, I never thought of ot that way, but it makes complete sense. If you are underpriced, bids will bring it up to market. Great post

Jan 26, 2007 01:48 AM

ARDELL DellaLoggia

Better Properties Seattle - Kirkland, WA

It is always sad when I see a seller turn down an offer in the first week, only to end up with much less later on. Stale on market almost always brings a lower price.

Jan 26, 2007 02:39 AM

Rich Schiffer

Swarthmore, PA

Referral Agent, e-PRO

Very Good post.

As I was taught, there is no greater marketing tool than pricing the home correctly

Jan 26, 2007 04:50 AM

Ray Saenz

Exit Realty Laredo - Laredo, TX

Homes for Sale in Laredo, TX - Texas, Realtor

Rich,

I enjoyed this blog :) thanks