The Cost of Having Some Negotiating Room
Yet another great post on accurate pricing. Too often we, as agents, WILL listing to a client and buy the argument on "Negotiating Room", in spite of having our comps before us. The pool of prospective purchasers goes DOWN as your price goes up, not the other way around. I think the Gabe Sanders BlueWater Realty Team did a great job of explaining this principle, and it certainly applies to all areas of real estate practice in the United States.
The Cost of Having Some Negotiating Room
Just before the start of the last ‘Housing Bubble’ I had a listing appointment with a seller who had a very lovely home in a highly desirable neighborhood that was in OK shape. It needed some updating, but it was in a great location. There were some excellent comps with homes very close to his and in similar shape that had sold between $225,000 and $250,000. I suggested he list no higher than $260,000and he could expect a quick offer and be out of this house and off to Colorado where he had a new job waiting.
He understood and agreed with the comps, but wanted to list at $300,000. He was convinced that with some ‘negotiating room’ he would be able to get a much better price for his home. I advised that this is not a good strategy as he will miss out on many showings and potential buyers because of the high price. Plus, the market was changingand I advised that prices could very well be going down soon. He wasn’t convincedand he decided to choose another Realtor that would list his $250,000 home for $300,000.
Well, the home sat on the market at $300,000 while prices were declining in the area. There were periodic price reductions at $10,000 increments and 6 months later this home expired from the MLS with a listing price of $260,000. During this time, I sold a neighbor’s home just one block over. Similar size and condition for $245,000 (list price was $250,000). I tried bringing my buyers in to see this home, but the price scared them away, even after I told them there was ‘negotiation room.
By this time the seller was in his new job in Colorado and in a rental. He called me about listing once again. With the current market I advised that he list no higher than $240,000 as prices were droppingand buyers were becoming scarce. No, he wanted ‘negotiating room'. This time he listed at $250,000 (with another agent) and 6 months later it expired at $220,000. Hi home was now worth around $200,000and he owed close to $200,000 on the mortgage.
To end the story quickly, I sold his home as a short sale for $165,00. He ended up with nothing, but at least he got out. If he had not left so much ‘negotiating room’ he probably would have walked away with around $40,000 two years earlier.
Now that many of us are in an appreciating market, one would think that pricing with some ‘negotiating room’ might work as the market will only increase in value until it approaches the list price of such a home. Unfortunately, if the price is high enough and the appreciation slow enough, by the time this equilibrium is reached this home may very easily be considered stale because it’s been on the market so long. Many agents and buyers will no longer even consider itor if they do, offers will certainly include a considerable amount of ‘negotiating room’.
the Gabe Sanders BlueWater Realty Team
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