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The Psychology of Price: Helping Buyers NOT Psych Themselves Out

By
Real Estate Agent with ACME Real Estate

Since the downturn in the market 5 years ago, I've frequently had buyers ask me, "So, how low do you think they will go?" when it comes to the price of a property. Despite the statistical figures showing consistent improvements in the market in Los Angeles (and Washington, DC metro) over the past year, there is still the lingering notion that it is a "buyer's market."

I try to educate buyers to not psych themselves out. If a property is well-priced, and it is quality house at a price a buyer can afford, I encourage them to make an offer that will get accepted (rather than make a low-ball offer and have the property be up for grabs for even a slightly better offer's price).

I mean, to me, I would much rather have the property I want to live in, and pay an extra 10K over 30 years (which at today's interest rates and with the amount of tax write-off you might receive on the front-loaded interest portion of the loan). It doesn't amount to much difference in monthly payment in the short term (5-7 years). Compare that to looking at foreclosures that need 100K worth of cash/work.

I was speaking with one broker who said he doesn't do much advertising--he just underprices the properties and watches the offers roll in and for much more than asking. He said, "The marketing IS the price." That's another way to do it, and I've seen that work in several markets (LA and DC).

However, it can also backfire, in that buyers see AMAZING properties coming on the market at what seems like a "too good to be true" price, and they think THAT'S what they can get for the money. When, in fact, the property is 50-100K underpriced and goes quickly in multiple offers, frequently cash. So, it takes an extra long time to educate the clients (and also it is emotionally exhausting) on how far their dollar will really go. 5 offers later, we just might get one.

In sum, here's what I'm saying: If you are a buyer, throw away the idea of getting a "deal." Just find a great house at a price you can afford and make an earnest effort to acquire the house. If you make a low-ball offer, it will just be countered and you'll probably end up settling at the "right price" anyway.

If you are an agent, please keep in mind that listing prices DO affect the market. Until properties close, that "in escrow" or "under contract" underpriced property just sits in the MLS making other properties look overpriced, and creates unrealistic expectations for buyers. Help us help you and set the price right!

Posted by
Courtney Poulos, Realtor, GREEN, EcoBroker Certified | 323.919.0375 direct | DRE 01882678

Lori Bowers
La Quinta, CA
The Lori Bowers Group

We laugh in our office as when the market was going up, up, up, people offered really low. Now it is really low, low, low in La Quinta, California area and they still want to offer lower, lower, lower. We diffuse it right away that appraisal will show the real price, but agents do not underprice  or overprice homes 50% when they list them. It makes them look silly and we are all professionals and knowledgeable on the market. I also show them recent comps in person as well as on paper to be sure I am not wasting their time and mine too. Thanks for a good blog.

Aug 21, 2010 04:31 AM
Dawn Crawley
Dawn Crawley Realty - Pinehurst, NC
Find Pinehurst Homes

Great post. I spend a lot of time educating buyers that in just in our county a lone we have several different markets. Some are struggling and some are doing quite well.  I let them know when I think a property is overpriced, and when it is priced well and guide them to make an offer depending on the specific property.

Aug 21, 2010 04:32 AM
Jeana Cowie
RE/MAX Real Estate Limited - Paramus, NJ
Broker Associate, ABR, CRS, GRI, SRES

Courntey, Well said. We do not have too much under pricing in our area, but unfornately, still have quite a bit of overpricing which can sometimes be worse. Especially as a listing agent.

Aug 21, 2010 04:35 AM
Hercel Spears
Advanced Realty Education HomeSmart Realty - Tempe, AZ

Another note to listing agents:  Most MLS rules state clearly that you must notify all MLS members that the price listed will in no way be acceptable to the seller as a final sales price.  It is rare that I see this disclosure made.

 

 

Aug 21, 2010 04:37 AM
Roseanne Campagna
John L. Scott RE Maple Valley, WA - Maple Valley, WA
Kent/DesMoines/Blk Diamond/Renton/Maple Valley, WA

Interesting review of what's going on with buyers' thought processes. The thing is that I see a house priced well one day and the value completely change in a week's time. Many of the agents who've have been successful in pricing homes throughout their careers have simply lost their touch in this market.

AS a new person trying to learn the business, it is even more difficult than usual right now. So I'm using patience and perserverance, with a good dose of listening to really good agents who are still succeeding in this market.

Aug 21, 2010 04:38 AM
Carla Freund
Keller Williams Preferred Realty - Raleigh, NC
NC Real Estate Transition & Relocation 919-602-848

I think you're correct, we do need to educate our clients (buyers and sellers) about the sell price.  We're not doing our sellers (ie. clients who hire us to sell their home at the best possible price) any favors if we don't look our for their best interest by letting them know what the current market is doing.  Plus, our buyers need to know what a fair price is.  Some buyers have a "blue light special" mentality and think it's only a deal when they can get it for a huge discount.  But, is it really a deal if it's not a great home for them?  Or, just because the price is reduced by a large chunk doesn't mean it's a deal.  You have to know the market.

The market is very local.  People move to our area from all over, they know what's going on in the market where they moved from and assume it's the same here.  Our job is to make sure they understand what the market is here so they pay the right price and don't pass on a great home.

Our market can be as local as the neighborhoods themselves.

Carla Freund Realtor Fonville Morisey

Your NC Realtor

 

Aug 21, 2010 04:40 AM
Paul S. Henderson, REALTORĀ®, CRS
Fathom Realty Washington LLC - Tacoma, WA
South Puget Sound Washington Agent/Broker!

I love it, You had me with the title...
Remember when Saturday was a day of rest too...
Paul

Aug 21, 2010 04:40 AM
Marcie Sandalow
Marcie Sandalow, Compass 301.758.4894 - Bethesda, MD
Bethesda Chevy Chase DC real estate

Great post, Courtney.  "Just find a great house at a price you can afford and make an earnest effort to acquire the house."  I should have this tattooed to my forehead.  There's nothing more frustrating than finally finding the perfect place (after months and months of searching), only have them go in with a ridiculously low offer.  Yes, after 4 or 5 times the lesson might be learned, but in the meantime, they've lost out on "the one."

Aug 21, 2010 04:44 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Courtney - Don't know how long you've been here in LA county but as you mentioned, this practice is rampant here.  When I first meet with my borrowers, I also try and educate them that around here, listing prices are sometimes just merely suggested prices and that very few of them are the actual sales price that the home will go sellers and/or the banks will accept. 

Like you, my clients and I find this practice frustrating and I too blog about it every now and then.  Unfortunately though, blogging about and admonishing thoe LA's that practice this does nothing to alleviate the practice.  Those LA's doing this don't care what buyers and other agents think of them and the way they conduct business.  If they did, they wouldn't engage in this type of conduct.  JMHO

Aug 21, 2010 08:25 AM