Underestimating the Cost of Overestimating

I've turned down a lot of listings the past two years.  That runs contrary to how a lot of people in this business operate.

When I first got into this business I would often hear other agents say things like "Any listing is a good listing," and "List to last!"

I totally agree with those statements with one important caveat:  listings should be priced correctly.

Back in the days of rapidly increasing real estate values, listing prices may not have been as important.  If a property was slightly overpriced, the rapidly appreciating market would catch up with it and sooner or later a buyer would come along and buy the property.

But here in Orlando, our market values have been decreasing over these past two plus years, and a lot of home sellers have gotten burned by not paying closer attention to how they priced their homes, and it has cost a lot of sellers a lot of money.

Selling a home is similar to selling anything else.  There is an excitement level that is generated when something first hits the market.  There is a sense of urgency generated by a buyer's fear that someone else may get the hot deal.  This leads to a lot of activity at first.  But this activity naturally begins to wane if the property does not sell.  Buyers get used to seeing the "same old can of beans" on the shelf and are no longer excited about buying it, or question whether it is a good deal "since no one else wants it."

It is the same concept that gets people to line up around a department store entrance and begin shopping at 4:00 a.m. on Black Friday.  The funny thing is - those deals that people are literally fighting over in late November are usually no better than the after-Christmas sales that can be found a few weeks later in early January.  But once the excitement over a $79 GPS has started to fade, the retailers may find themselves slashing prices even further to move the existing inventory.  Sound familiar?

A good agent understands the critical importance of pricing a property accurately at the time the property first hits the market.

Now did I just say that agents that take over priced listings are bad agents?  Absolutely not.  I just think a lot of good agents are afraid to be totally honest with clients about what their home is truly worth. 

I know that we all walk a fine line anytime we are invited into someone's home to give them an opinion on price.  I think it's actually harder with people I know on a personal level.  Telling a friend that their home is worth $50,000 less than they think it is can test a friendship.

But over the years I've found it better to test the relationship on the front end of a listing as opposed to taking a listing that's over priced and then be in an even more awkward position several months later when we can't get the home sold.

There are a lot of people out there (other agents and sellers alike) who think my convictions regarding pricing are over blown.  After all, from a realtor's perspective - a listing is not only an opportunity to sell a home and grow one's business, but it is also an opportunity to have one's sign in someone's front lawn and attract buyers.  Great advertising, right?

Perhaps, but often at the expense of a good relationship or one's reputation if the home won't sell because of price.

But the bigger harm from the seller's perspective (and where many of us as agents do a grave disservice in my opinion) is the fact that an over priced home will most likely end up selling for less than it would have had it been priced closer to its correct value at the early stages of its exposure to the market.  It is easy to see how this can become exacerbated in the case of declining market values. 

Forbes came out with another one of their (in)famous top 10 lists this week.  The regular readers of my newspaper column know that I'm not a big fan of  top 10 lists as they relate to real estate.  I typically find them to be misleading and an oversimplification of what are typically more complex market patterns.  But this one I have to confess is cogent.  The list is entitled "Where U.S. Homes Are Most Overpriced". 

Of the 40 major metro areas surveyed around the country, my hometown of Orlando came in first.  According to Forbes, homes in Orlando stay on the market longer than other areas, and when they do sell they go under contract at a price significantly lower than the original list price when compared to other cities.

There are many sellers in my Downtown neighborhood of College Park Orlando who have chased the market down because they were not priced correctly when they first hit the market.

Just for kicks and giggles, I took a look at every closed transaction in College Park over the past two years (418 homes in all):

• Those that sold within 30 days sold for an average of $11,000 below original list price.
• Those that sold within 30 - 60 days sold for an average $26,000 below original list price.
• Those that sold within 60 - 90 days sold for an average of $41,000 below list.
• Those that were on the market between 6 months and a year (69 homes total), averaged $91,000 below list price!

You think the original list price for a property isn't that important?   Just ask those 69 sellers.