"What happens if I put a '0' here..."

By
Services for Real Estate Pros with Goomzee

Last week’s team meeting produced an interesting tale of ‘overpricing woe’.  The parents of one of my associates listed their house in mid-2006 at $590,000.  The inaccurate list price was determined by their real estate agent, and the property sat on market for nearly 2 years, suffering a price drop of almost $200K.  By the time my co-worker’s family unloaded the property, they had to settle for only $400,000; this unpleasant situation could’ve been avoided if only it had initially hit the market in the correct price range.

 

Overpriced listings are, unfortunately, a common practice in real estate.  Some agents overprice their listings thinking they have provided themselves with “wiggle room” when it comes time to negotiate.  Other agents price too high because they are either in agreement with the seller’s over-inflated valuation, or they are “buying the listing”: an unethical practice I will expound on later in this post.

 

Overpricing a listing for the sake of “wiggle room” may seem like a good idea, but in the end it will only serve to hamper your selling efforts.  High priced homes do not yield as many inquiries as listings that are priced competitively; the lack of offers usually leads to several price reductions and a lengthier term on market, two factors that serve to erode the integrity of your listing.  Savvy buyers will shy away from ‘lemons’ that have sat for months on end, only moving in for the kill when the agent has reduced the price by half of its original value. 

 

Sometimes homes are priced too high for no other reason than the agent-seller team is in agreement.  The trick in this situation is being able to look at a property objectively, as a buyer would see it.  The seller’s viewpoint is obviously biased, but rightfully so since he/she has large sums of money invested in the property.  Oftentimes valuations of a home are inflated due to upgrades the seller has performed.  Sadly, buyers tend to not see the value in these upgrades, opting instead to modify the home themselves and therefore considering any upgrades the current owner has performed nothing more than the offering that’s on the table.  Overpricing your listing based on current homeowner upgrades has the potential to lead to the unpleasant situation where the homeowner realizes that they spent more money on upgrades than they will ever see at the time of closing.

 

Unethical agents will sometimes attempt what is called “buying the listing”.  This happens when the agent enters into a listing presentation with a purposefully over-inflated CMA.  Of course, since homeowners oftentimes (through no fault of their own) have inflated valuations of their property, the ‘shady’ CMA aligns with the seller’s wishes and the agent has effectively bought himself a client by knowingly catering to their unawareness. Sometimes agents enter into these situations with the intention of talking down the seller at a later date; this, also, is not a good idea since your initially over-inflated price will undermine any chance the agent has of cashing in on the “New Listing Hype”.

 

You will get no argument from me that this is a touchy situation.  No agent has ever won a listing by strong-arming their clients and ordering them around like green recruits.  But, the question becomes: at what point are you catering too much to the seller that you are, in fact, sabotaging the transaction?  It is the responsibility of the agent to draw on their industry expertise to protect their clients from low-ball offers, high-priced listings, and any physical harm incurred at the negotiation table. They are not only investing in your expertise, but ultimately placing their future in your hands.  It is the duty of the agent to live up to those expectations.

 

Comments (13)

Mark Hall
Realty One Group Cascadia - Vancouver, WA
Homes for Sale Vancouver Washington

I prefer the truthful approach. I would rather risk losing the listing by telling them the truth up front than ruin my reputation by taking a listing that is severely overpriced. If the seller is set on their price, then I offer a compromise: "Let's try it at your price for a period of time to see how the market reacts. We can make a price change after that. Would that be alright with you?" I did this with a seller a few months back and when they refused to bring the price into a reasonable range at the time that we agreed, I fired them and canceled their listing. They found another agent in the area who now has it listed for $10,000 more than I did! Good luck with that one!

Jun 29, 2009 10:19 AM
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

I would say that most are just buying the listing... or they don't know how to figure out pricing and just do whatever the seller says.

Jun 29, 2009 10:21 AM
Monika Depalo
GAFF'S REFERRAL'S INC. - Port Orange, FL
REAL ESTATE Agent/Stager

200,000 overpriced is quite alot.  How is it selling at the new price that it was meant to be?  There must be a better way to list a property.

Jun 29, 2009 10:28 AM
Austin Smith
Goomzee - Missoula, MT
Goomzee.com

Mark - I agree with you 100% and your response is exactly how I would handle the situation.  Why risk tarnishing your W-L record by striving only to appease sellers?  True, this is somewhat necessary, but when you are forced to make a decision that only serves to hurt your business, a line has been crossed.  Snaps to you for embracing the logical and ethical course of action.  And thanks for your comment!!

 

Donna - I think you're right.  Overpricing can be the result of several factors, but I would hesitate to say more often than not it stems from the agent simply trying to do whatever his/her clients deems correct.  Thanks for your comments and your insight!!

 

Monika - It has since sold, and at the time of closing they suffered a $200K drop in price.  This is just one of many stories about the outcome of an overpriced lsiting.  Don't let it happen to you!

Thanks for your comment Monika.

Jun 29, 2009 10:48 AM
Margo Currie
Exit 1 Stop Realty - Saint Augustine Beach, FL

Good luck on the appraisals for those overpriced listings!!! The homeowner has his idea what the property is worth, the realtor has his opinion, but the REAL question is... What does the appraiser think it's worth?

Jun 29, 2009 11:00 AM
Austin Smith
Goomzee - Missoula, MT
Goomzee.com

Margo - That's a good point. People often forget how important the official appraisal actually is.  It impacts not only how the realtor prices a listing, but also how the bank values the property.  THanks for your comment!

Jun 30, 2009 05:07 AM
Ginger Harper
Coldwell Banker Sea Coast Advantage~ Ginger Harper Real Estate Team - Southport, NC
Your Southport~Oak Island Agent~Brunswick County!

I just got my sellers to reduce by 71K....

Got to price it right.

Ginger

Jul 01, 2009 07:50 AM
Austin Smith
Goomzee - Missoula, MT
Goomzee.com

Ginger - Right you are.  Nice work Ginger!  I'm sure it wasn't easy to confront your sellers with that request, but it had to be done.  Keep up the good work, and thank you for your comment!

Jul 01, 2009 08:07 AM
Mary Strang
Viroqua, WI

In the past 8 months many of the overpriced homes have not sold, now the ability to get the Price that would have been the correct price from 8 months ago is even harder.

Jul 04, 2009 03:17 AM
Rama Mehra
Asante Realty - San Ramon, CA
TOP 1% REALTOR IN THE TRI-VALLEY

I lost a listing because I told the seller how much they can get for their home and another agent came in and sugar coated the bitter pill. The house sat on the market for 10 months and sold for 175K below what it was listed for and even 60K lower than what I had quoted ! Disservice on the behalf of a lying agent who just wanted to get the listing

Jul 05, 2009 05:45 PM
Austin Smith
Goomzee - Missoula, MT
Goomzee.com

Mary - Good point Mary.  It's important for agents to cash in on the 'New Listing Hype' that comes with every property's market.  As you said, it's important to price accurately so you won't turn away prospective buyers.  Thank you for your comment!

 

Rama - It is unfortunate you lost the listing to an untruthful agent.  I feel bad saying it, but at least you got the last laugh!  Sometimes that's all you can take aways from these situations.  Thank you for your comment!

Jul 06, 2009 03:13 AM
Lisa Oden
Results Realty Services - Lawrenceville, GA

AMEN!!  I lost a listing in January to an agent who priced at least $60k too high (huge problem for the $200k price point).  The home still sits with only a $14k price reduction.  Looking at stats for the area, the home will continue to be rejected by the market.  I did communicate the importance of pricing to the seller at time of listing presentation.  It is my firm belief that "wiggle room" isn't a good marketing strategy, as you can't negotiate without an offer.  Our market has been ROCKED by foreclosures, so people pass right by overpriced listings and move on to the next. 

Believe me, I love to have signs in the ground, but would rather they not become part of the permanent landscape!  :-) 

Jul 10, 2009 03:57 AM
Austin Smith
Goomzee - Missoula, MT
Goomzee.com

Lisa - Too bad you lost the lsiting, but looks like your in the same boat as Rama: "Told You So!!" 

The sellers will definately realize the error of their ways when they are still in their overpriced house a year from now.  You did the right thing in being up front with them; the conversation will no doubt pop back into their mind when they go to replace the agent who is currently over-pricing the listing. 

Thanks for your comment, Lisa!

Jul 10, 2009 06:01 AM