A "listing" is a contract that authorizes a licensed real estate agent to represent a seller in the sale of their property. The agreement outlines general terms, conditions, and commitments between the seller and the agent, including:
- Price and terms
- Duration of listing
- Property description, including items that will transfer with the sale
- Commission or compensation to the real estate agent
It is always wise to consult an attorney before signing any legal contract.
Price and Terms
The listing states the price at which the owners are willing to sell, as well as any other terms that are pertinent to the seller's situation. In selecting a price, the seller should review comparisons provided by the agent that review similar homes on the market, similar homes sold, and similar homes that were listed but did not sell. This "Comparative Market Analysis" presents comparable homes in a format that assists the seller in identifying a price range as well as an actual target price. It is extremely important that the price be set at a level that is close to or exactly at the point where the analysis, as presented by the real estate professional, indicates the home will sell. Many sellers make the mistake of setting a price that is too high, and the results are often very costly.
Here are common assumptions made by sellers in selecting prices that are above market conditions:
Seller's Reasoning:"Let's just try it at the higher price for two weeks, then drop it if we don't see an offer."
The Challenge: This is the information age. You can safely assume that today's buyer is well informed and price sensitive. A property that is priced over the market will deter buyers who are serious about finding a property. If a buyer has to begin the negotiation with an offer that is way off the listed price, they can assume that their offer will be turned down or countered. They will look elsewhere where the chances of a successful offer situation are greater.
Seller's Reasoning: "Let's just try it a the higher price for two weeks, and then drop it if we don't see an offer."
The Challenge: When a home goes on the market, there are already buyers in the market who are actively looking. These individuals are eager to be made aware of any new properties listed. If the listing is overpriced but the buyer still has an interest in the house, he will either wait for the price to drop or will offer well below the listed price. Either circumstance is unfortunate for the seller. The seller is committed to holding out during this period of time just to test whether the higher price might work. In the meantime, their best buyer is either waiting for the anticipated price drop (and continuing to look at other properties) or is submitting an offer that the seller will reject while they wait to see who else is out there. The general rule, reinforced time and again with actual experience, is that your best offer is the first offer you receive.
Listing at a temporary price simply delays your sale. The market sets the price, so it is likely your price will end up the same regardless of your trying the higher price. What is lost with this approach is time.
Seller's Reasoning: "We have all of the time in the world. Let's price it above the market and hope the market catches up."
The Challenge: There are two issues at play here. First, the fact that the seller is not in a rush to sell, is no excuse for pricing the property too high. It still won't sell! Why not wait a few months, enjoy your privacy, and put it on when there is a need to sell. Houses that sit for months on the market acquire a reputation for being overpriced and not worth showing. People will conclude that there must be something wrong with it if it has been on the market for so long. Real estate agents will show the newer listings before taking their buyers to something that obviously does not beckon to be sold.
Second, it is never wise to set a price according to what a market might do. The things that effect real estate markets such as wars in other countries, stock market crashes, unexpected layoffs, and natural disasters are rarely anticipated but can dramatically shift home prices. Don't count on stability when selecting the price. Choose a price according to today's market and then adjust quickly as circumstance change.