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Price to Sell or Priced to Sit - That is the Question?

By Tracy Santrock

Real Estate Agent with Santrock Realty Group Inc. , 244213

May 27, 2008 05:47 AM

Today I met with clients to discuss Marketing their property. I must admit the home was absolutely fabulous(custom built in 2005) and they had done some incredible updates to the home such as:

Plantation Shutters
Added a coiffered ceiling in the downstairs formal living room
Wet bar in the bonus room
Dual Zone surround sound
Hired an interior designer and custom painted the walls throughout the home
Gourmet kitchen
Office on the 1st Floor
Added fabulous landscaping
10 Foot Ceilings on the 1st Floor
9 Foot Ceilings on the 2nd, except a 2nd bedroom w/12 foot ceilings

That said, my potential clients needed to understand the reality of the Triangle Luxury Home market. I have other Priced to sell or sit? Luxury Home listings currently and they are truely a challenge.

Why would this lovely home be such a challenge going into the peak selling season?

There are 33 Active Listings in the Neighborhood. The sister neighborhood has 26 specs going on the market just this month.
The New Homes are offering a $16,000 incentive for membership to Cary's premier Country Club
Inventory in this segment in Cary has grown over 30% in one year
Supply of homes between $500-$600k is 22 months and growing
Market share for luxury homes is substantially lower than N. Raleigh(32% vs 17% in Cary)

Pricing Discussion:

Because of all of the new construction there were plenty of comparables.
The clients big concern is that I didn't look at comparables on the side of the neighborhood that didn't back to I-540.
All of my comps were on the "resale" side which were substantially lower than the new construction.
My clients wanted to price their home at the same price with homes that had 500 square feet larger, have an extra garage, and an extra bathroom.

Take a walk in my shoes and let me know what you think What would you do if you were in my shoes? Would you take the listing or wait until the home doesn't sell and let them call you for Round 2? Take a walk in my shoes for the moment.

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Bob & Carolin Benjamin

Benjamin Realty LLC - Gold Canyon, AZ

East Phoenix Arizona Homes

Tough call. If you take it, it sounds as though you will be babysitting the listing for a very long time. But you have to do what you feel is best.

May 27, 2008 05:25 PM

David Daniels

Owner of FlyersToYou, Inc. and former Top Realtor - Hemet, CA

Hmm...

Renee Burrows above brought up one of THE most important facts here!! THE APPRAISAL!!

Here in Southern California, we now have cities where lenders are reducing maximum LTV's by 5% because the home is in an "unstable" market area. Yikes!! <---The lenders are already predicting another 5% reduction in price and making CURRENT loans accordingly!!!

Before I started FlyersToYou, I spent many years on YOUR side of the fence selling real estate. Here's how I handled the overpriced listing situation. I guess I should preface this by acknowledging that this strategy came about only as a result of watching several listings go to another agent...then watching as they reduced the price ultimately to where I told them it needed to be in the first place...and further watching as THAT AGENT MADE THE SALE AND THE $30,000 COMMISSION!!!

Grrr....I hated that!

Soooo...$200,000 later, I decided I would approach the situation differently. Instead of sticking by my guns and being "right" (at the cost of tens of thousands of dollars)...I realized there had to be some way I could turn the situation into a positive experience for all concerned.

FACTS:

1.) 97% of all purchase transactions involve some type of lender financing.
With that being the case, an appraisal would be required by the buyer's new lender. All accuracy arguments aside, it's that appraisal which will be determining current market value. I explained to my sellers that with the pricing set at what THEY want (overpriced), we'd be relegated to marketing their home only to those buyers who did NOT need new financing. In other words, all cash buyers.

As a result, we'd be limiting our exposure to the 3% of the buying public who were paying all cash. The result? We'd miss out on 97 opportunities to sell the home for every 100 "chances" we'd get through whatever advertising we did. Meanwhile, they'd still have to remain current on their existing mortgage, insurance and tax payments. If their PITI was $1,900/mo....and the home saw no activity for 7 months, then the $15,000 in overpricing they wanted now...completely vanished by way of monthly payments they had to make while their home just sat. Sellers can relate to the above much more readily than you simply telling them their house isn't worth it.

I recommended they pay for an actual appraisal from a state licensed appraiser. While I realize the appraisal may not be usable by the buyers' new lender, it DOES help establish current market value. It actually does two things really. It tells the seller how accurate their own asessment of value is...PLUS...it helps new offers come in higher when the property is advertised with "Appraisal in at $499,900". NAR did a study years ago that proved when an appraisal was already done on a property, initial offers came in 5-8% higher than when the price was just an asking price.

2.) It gave me tons of marketing opportunities in the neighborhood!
I always had the nicest marketing materials of any of my competitors (yes, that's what led to FlyersToYou)...but if I didn't have a listing, I couldn't show surrounding sellers the kind of marketing I did. The kind of agent I was.

The hottest looking flyers with matching "Just Listed" postcards, my custom property address website, my walking door-to-door to 25 homes in the immediate vicinity to introduce myself and hand them a gorgeous glossy flyer on cardstock...etc. I wowed the neighbors, even if the property I had listed wasn't going to sell right away. And I wouldn't have had that opportunity if I hadn't taken the listing.

We tend to lose sight of the fact that EVERY SURROUNDING NEIGHBOR is tomorrow's best listing prospect!!

YOU CAN'T AFFORD TO MISS ANY OPPORTUNITY TO "STRUT YOUR STUFF" IN A NEIGHBORHOOD!!! Just make sure you approach it in a positive, proactive manner that makes sense even to your persnickity seller!

Good luck!!

Dave

May 27, 2008 06:33 PM

Christine Donovan

Donovan Blatt Realty - Costa Mesa, CA

Broker/Attorney 714-319-9751 DRE01267479 - Costa M

It depends how much frustration you're willing to deal with. Also, would they be willing to give you price reductions on a particular schedule so that you don't have to wait until the property is completely stale? Perhaps if there are only a certain number of showings the first week, or no offer during a particular period, etc. If they aren't willing to be reasonable, I'd probably wait for round 2.

May 27, 2008 07:36 PM

Diane Bell, Hilton Head Real Estate, Bluffton

Charter 1 Real Estate, Hilton Head, Bluffton, SC - Hilton Head Island, SC

Can you take the listing with a written confirmation that they will reduce within 30 days? Perhaps they'll agree to something like that? Otherwise, it's rather futile to sit with overpriced listings.

May 27, 2008 11:28 PM

Cynthia Tilghman, Realtor® Onslow County NC Home Specialist

Kingsbridge Realty, Inc - Hubert, NC

Hi Tracy,
You've gotten some great advice here and I'm with the ones that say, here are the true facts and if you really want to sell your home within a reasonable time, this is the price it will sell at. Look them straight in the eye and wait for the verdict. I'm betting on an "ok, if that's what you think". Good luck.

May 28, 2008 12:55 AM

Tracy Santrock

Santrock Realty Group Inc. , - Cary, NC

Raleigh - Cary Broker

David - We discussed the appraisal at length. I had another client that tried to overprice their home and I made them shop the competition. They were friends so it was a bit easier than a "cold call". The end result - the sold on the 1st day and the home still almost didn't appraise.

May 28, 2008 12:58 AM

Tracy Santrock

Santrock Realty Group Inc. , - Cary, NC

Raleigh - Cary Broker

Cindy,

Very interesting strategy. I've used the Absorption strategy but need to start incorating it more often since are market has shifted in the higher price ranges.

That absorption rate is really high; I typically do take the listings and have the policy of 5 showings in three weeks (which is great in Indy) or we drop price 2%.

May 28, 2008 01:10 AM

Tracy Santrock

Santrock Realty Group Inc. , - Cary, NC

Raleigh - Cary Broker

One other point that everyone needs to take into consideration is that our market here has been red hot for so long that sellers aren't willing to budge and buyers think they can come in and scoop up property for a song!

That said, the two are both going to be in for a surprise as the market shifts.

May 28, 2008 01:22 AM

Kelly Sibilsky

Licensed Through Referral Connection, LTD. - Lake Zurich, IL

I think each situation has to be looked at on the basis of it's own merits...including the seller's overall motivation, how much equity they have in the home (this is extremely important, can they afford to sell at your recommended list price?), where the home is located, how nicely it will show, what type of exposure the listing will give you for sign calls, etc. That being said, if it is a good listing in every area except for price, you may want to take the listing at the seller's price for 10 days. After 10 days the price must be dropped to your recommended list price (pre-signed and agreed to by the seller). During that 10 days, you'll either get no showings or if you do get showings you will receive feedback from the showing agents that the price is too high, further supporting your position.

That being said, I generally won't take overpriced listings, especially in a declining market. I've turned down several that didn't fit my criteria this year. I want my sellers to be successful, not just on the market!

May 28, 2008 01:41 AM

Debra Kukulski, Broker Associate

RE/MAX Suburban - Cary, IL

SRES;SFR,CDPE;GRI;ABR;e-PRO Realtor, Northern IL

Tracy, this is a great discussion. Overpricing only hurts them...the sellers and us...the Realtors in the long run. It is not a good situation in this market, in my opinion.

May 28, 2008 02:30 AM

Donna Yates

BHGRE - Metro Brokers - Blue Ridge, GA

Blue Ridge Mountains

Tracy: Personally, I have vowed not to take an overpriced listing ever again. The home sounds fabulous but it looks to me like you did your homework and the sellers need a good reality check.

May 28, 2008 02:48 AM

Anonymous

"We discussed the appraisal at length. I had another client that tried to overprice their home and I made them shop the competition. They were friends so it was a bit easier than a "cold call". The end result - the sold on the 1st day and the home still almost didn't appraise."

Tracy,

I love reading the comments from everyone here. It's obvious that we've all "been there, done that" to some extent in regards to the pricing topic. I feel your pain when you mentioned that the home still almost didn't appraise. Sheesh...how many times has THAT happened to everyone??!! Let me clarify my point regarding appraisals.

I don't think we can stop at simply talking about an appraisal to a seller. I actually used to have my overpriced sellers PAY FOR AN APPRAISAL UPFRONT!

The conversation went something like this:

"Mr. and Mrs. Seller...the price at which you're asking me to list your home appears to be considerably higher than what current data indicates the true value to be. I understand your reasons for wanting to price your home at that amount, but I want you to understand what can happen if we do that...and the potential impact it will have on both your marketing time and your pocketbook. I also think I have a potential solution."

I would then explain the fact that only 3% of the buying public pay cash...and that everyone else gets a new loan. New loans require an appraisal. It would be silly to market a home for x-period of time, only to find that it doesn't appraise and the deal falls apart later as a result. For $350.00, the seller can mitigate their losses by finding out from a licensed and disinterested appraiser what the true market value of their home actually is. NOTE: Some appraisers will do free "quick comp checks" to provide an estimate of the value without doing a full-blown appraisal.

You could write into the listing agreement a clause which states that the seller agrees to re-price the home according to the appraised value at the end of 30 days. In most cases, however, they'll price it at the appraised value right away.

You now have a valuable tool to market the property with, as prospective buyers believe it more when they read that an appraiser has determined the value...versus the homeowner or agent. You'll also receive 5-8% higher offers than without an appraisal (NAR study proved that.) On a $500,000 home, that equates to $25,000-40,000 higher potential to the seller....and they seem to like that idea for some reason. <smirk>

Lastly....some of the agents above have stated that you'll have upfront marketing costs to try and sell an overpriced listing, which doesn't make sense. I STRONGLY DISAGREE WITH THAT STATEMENT!
You're NEVER spending money to market a "property". Rather, you're spending money to market yourself.

This will sound self-serving since I own and operate a marketing company which helps agents promote themselves better...but having a custom full-color sign with your photo on it in the front yard, with high-quality brochures in the flyer box, matching elegant "Just Listed" postcards going out to 250 surrounding homeowners, a distinctive "PropertyAddressOnWeb" site to show off the home, etc. is NOT MARKETING THE PROPERTY...IT'S MARKETING YOU!!!!!!!!

There are surrounding homeowners who are looking at what every single agent is doing to sell homes, and are drawing conclusions as to what type of agent they are by what they can see, touch and feel. Even with an overpriced listing, you gain an opportunity to show everyone the kind of marketing you'll be doing when they list THEIR home with you.

There are many sellers in that neighborhood who are not overpricing their homes...and you need to show them why you're the only agent to work with. Perhaps your listing presentation will show them, but if you're not one of the ones they think of when interviewing agents, then having the best listing presentation doesn't do you any good. Remember that surrounding sellers didn't have the opportunity to sit in on your listing presentation with the overpriced seller. They can only begin judging you as an agent when they see what you do after taking the listing.

You can be "right"...and not take the listing. Or....

Take the listing, establish a price-reduction strategy that makes sense to everyone...market the heck out of yourself in the neighborhood and secure another 3-5 'normally' priced listings...and ultimately earn yourself a $15,000 paycheck. Why anyone would walk away from that kind of opportunity dumbfounds me!

See an example of a high-end property address website here: http://www.34358WilsonCreek.com

Dave

David Daniels
President/CEO
www.FlyersToYou.com

May 28, 2008 03:26 AM

#52

Anonymous

Yikes...one more comment...

I'd much rather have 10 of my signs in a 250 home community...than only one or none at all. I'll get 10 times the buyer calls, and 10 times the opportunities to market myself. Not with cherry pie recipe postcards either....but with ACTUAL "This is how I'll market YOUR home when you list with me" campaigns.

Agents who refuse to even consider taking an overpriced listing (even with some of the precautions you can easily make)...are missing out on great opportunities to build their presence in a given community. I used to love competing under those terms!

Dave

David Daniels
President/CEO
www.FlyersToYou.com

May 28, 2008 03:42 AM

#53

Anonymous

Rick Dunn

Not sure if a non-REALTOR viewpoint would be of value, but when selling my property in Colorado recently, I had this same exact discussion with my listing agent.

My suggestion is similar to Colleen's - as a homeowner, I'm less interested in what other people have listed their properties for than I am in what they recently sold for, how long it took, and how similar those properties were to mine. Like your clients, I felt my property had some significant points of differentiation that warranted a price above her CMAs (higher end finishes, mountain view, etc. - none of her CMAs accounted for that).

After a healthy discussion, we listed it for 8% over her CMA. I agreed that if the actual showing activity didn't make her feel like we were priced sensibly, we'd revisit after one month. Not including previews, we averaged 3-4 showings per week, and it sold after two months for 2% less than the list price. This was late last year when there was about 6-8 months of inventory.

I think there are many valid reasons for sellers to reject CMAs. The challenge for the listing agent is separating out the emotional ones from the more rational and compelling ones in order to arrive at an appropriate price. The showing activity will validate (or invalidate) the choice of listing price. In my case, the extra effort yielded an extra $20-30k over my agent's CMA price, and provided her with a higher commission.

May 28, 2008 06:57 AM

#54

Tracy Santrock

Santrock Realty Group Inc. , - Cary, NC

Raleigh - Cary Broker

Rick - A CMA may tell you a homes sales price. That's why I truly believe we should provide sellers with a pricing range. The pricing range reflex motivation vs. a lack of motivation. Add to the motivation a built-in price adjustment during the peak selling season and it's a win-win for all. Tryin g to "make" sellers sell at a lower price in the beginning makes them believe that, if it sells quickly, that they've left money on the table. And that is even if the appraisal comes in at the same value as the sales price.

Another key factor is the supply/demand in your area at the time vs. the "Luxury Home Issues" we have in the North Cary real estate market.

May 28, 2008 12:54 PM

Anonymous

I am an appraiser so understand where I am coming from. In todays market you cannot play around with the list price in order to coddle the homeowner. They have to know that you are looking out for their best interests. I have had numrous agents contact me to do an appraisal to arrive at a listing price. Usually this makes the homeowner feel more comfortable if the agent did not sugges a list price that was what they were expecting (if they are reasonable). No matter how nice a house is, if it is not priced right its going to sit.

May 28, 2008 04:07 PM

#56

Jonathan Osman

Jonathan and Associates, Inc - Charlotte, NC

Charlotte House Hunter Group

Ask them why they think a buyer would choose their home over one that is larger, newer, and didn't back the highway at the same price? I would remind the seller that if they want to wait those 22 months for the home to sell, they should list the home at the right price today. After all, a price reduction later on just means your chasing the market. If you don't think it will sell, call them after it expires once or twice. Let the other agent waste their money marketing an over-priced listing.

May 28, 2008 06:15 PM

Tracy Santrock

Santrock Realty Group Inc. , - Cary, NC

Raleigh - Cary Broker

Jonathan,

Ask them why they think a buyer would choose their home over one that is larger, newer, and didn't back the highway at the same price? COVERED

I would remind the seller that if they want to wait those 22 months for the home to sell, they should list the home at the right price today. GOOD POINT

I would remind the seller that if they want to wait those 22 months for the home to sell, they should list the home at the right price today. THEY ARE ON MY RADAR FOR 6 MONTHS FROM NOW. WE'LL SEE.

May 29, 2008 02:34 PM

David Daniels

Owner of FlyersToYou, Inc. and former Top Realtor - Hemet, CA

Pricing Discussion:

Because of all of the new construction there were plenty of comparables.
The appraiser will not use new construction if there are ample resale properties from which to base his value. If he DOES use the new costruction, a negative adjustment may be made. Contact an appraiser for the estimated adjustment in age.
The clients big concern is that I didn't look at comparables on the side of the neighborhood that didn't back to I-540.
If they are like properties, you can most definitely use the comps that don't back to the highway, bearing in mind that the appraiser will make a negative adjustment. Again, contact an appraiser to find out what the downward adjustment would be.
All of my comps were on the "resale" side which were substantially lower than the new construction.
If the new construction is offering a $16,000 Country Club membership incentive, that entire amount will be reduced in the final appraisal analysis. When sellers offer incentives of any type (free trips, memberships, new cars, etc.) they are considered inducements to buy, NOT property value. The appraiser will make a dollar-for-dollar adjustment in the "sold" value of the new home, If the new home sold for $586,000....then the comparable value is actually only $570,000 on the appraisal.
My clients wanted to price their home at the same price with homes that had 500 square feet larger, have an extra garage, and an extra bathroom.
A problem I used to see often is that agents have a tendency to use price per square feet in determining their value (It's the wrong way...DO NOT DO IT!).

As an example, if a home sells for $499,000 and is 2,560 square feet, the cost per square foot is $194.92

If the home next door is 2,800 square feet x $194.92, it's value should be $545,776, right?

WRONG! WRONG! WRONG!

Although one component of an appraisal is the cost per square footage, it is not how the appraiser determines final value. Instead, he'll take the sales price of the sold properties and start making positive/negative adjustments for features and amenities.

If the smaller home had travertine floors, granite counters, plantation shutters, coffered ceilings, and fabulous landscaping (sound familiar?)....it's likely that its price per square foot will be substantially higher than the larger home that does not have those amenities, meaning it's value can be close to...and sometimes exceed the larger home's value.

Agents need to stop using the price per square foot paradigm in determining market value. Sit down with your mortgage lender (or an appraiser)...and actual look at how an appraisal is done. The adjustments they make for certain features and amenities, etc. This will give you a much better insight as to how the value will be established once a buyer is found and an offer made.

Tracy,

This is an absolute case for advising your sellers to buy an appraisal TODAY~! I wouldn't put them on my radar for 6 months. They'll be six months further down the road in monthly payments (probably $12,000-18,000, which is money they could have in their pocket today.) Interest rates could be higher which will limit how many will be able to to buy their home six months from now. And you'll be six months away from marketing yourself within that community...and potentially earning a commission.

You will not be doing yourself....nor your sellers....any favors. And you run the risk of having another agent handle the situation in a more proactive manner....and close the deal.

Some of the responses above were very good....and some were a typical agent's reaction to what they perceive to be an unreasonable seller. Your job is to provide solutions in these kinds of situations....not sit back and "see what happens".

Sorry for taking the direct route here. I certainly don't mean to offend anyone, but it makes me wish I had the seller's phone number. I'd have that listing in a heartbeat. They'd ultimately agree to pay for an appraisal....we'd set the sales price at where it needs to be...I'd be able to have a sign in the yard and start generating buyer calls....and I guarantee with my marketing, I'd garner another 3 listings in the neighborhood.

Dave

David Daniels
President/CEO
www.FlyersToYou.com
Ph: (951) 652-8365
ddaniels@flyerstoyou.com

May 29, 2008 03:13 PM

Tracy Santrock

Santrock Realty Group Inc. , - Cary, NC

Raleigh - Cary Broker

David,

I appreciate your passion! I'm right there with you! I will be taking all of the AR opinions back w/me in 6 months when the sellers have paid their mortgage living somewhere else without selling. Yes, it's a model home, but the sellers need to get real. Thank you for your expert opinion.