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Priced Right? Are you sure that’s not part of the problem?

By
Services for Real Estate Pros with CPG Tours

I realize I might be opening a can of worms here. But I’m very curious, what does “priced right” really mean? And could it be part of the reason for the downward trend in the market? Or, at least, contributing to it.

Here’s part of the reason I ask.

My next-door neighbor recently listed their home. And two days after the agent’s sign went up, I noticed a new sign-rider that said, “Priced Like an REO.” I thought to myself, “Oh, no. What are they doing?” So, I just had to go out and grab a flyer to see what they were up to. And sure enough, they had it listed almost 20% below FMV. And I’m not talking about what other people have been asking, but what has sold and recorded within the past several months.

Well, sure enough, in little over a week there was a SOLD sign. And then a week or so after that there were contractors already working on the house - which suggested that it may have already closed escrow. Could it have been a cash deal? We’re talking expensive homes here!

Anyway, on three of different occasions, I was relaying this story to agent friends of mine, and they all said, “Well… if it’s priced right, it will sell.”  That’s when it hit me.

Priced right? That home wasn’t “priced right.” It was low-balled, that’s all. Anybody could do that. And if the price is low enough, anybody could sell it too. Even a FSBO.

But it also absolutely killed the comps in our neighborhood. We’re in a little pocket development, with maybe 50-60 homes total, and the surrounding homes are very different and can’t really be used in comps. So, even a single sale can have a huge impact on appraisals.

So, while our neighbor may have succeeded in quickly selling their home, they also succeeded in driving the prices down for our entire development.

Which brings me back to my original questions. What does “priced right” really mean? And if it’s merely low-balling the price, couldn’t that be perpetuating the downward trend?

I really am curious as to what agents think. So, thank you in advance for your comments, insight, and input.

Michael (Mike) Elliott
Nottingham Real Estate Group - Hamilton, NJ
Hmmm.  How do you define FAIR MARKET VALUE? 
Mar 27, 2008 02:19 AM
Ken Tracy
Coldwell Banker Residential - Naperville, IL
Helping clients buy and sell since 2005

Good morning Michael.  Tough situation.  If the seller is satisfied, I think it was priced right.

I do know how you feel,

Ken

Mar 27, 2008 02:23 AM
Michael Kupper
D.R. Horton - Pflugerville, TX

Hi Michael, Whenever I think of "priced right" it always goes back to a basic economic supply/demand curve. So "priced right" to me, simply means, how soon does the seller need a closing. Comps will forever be our friend and foe. Have a great day!

 

Mar 27, 2008 02:25 AM
Steve Hoffacker
Steve Hoffacker LLC - West Palm Beach, FL
Certified Aging In Place Specialist-Instructor
Michael, it seems like the home in question sold because it was priced right. Does that mean it could have sold for more - quite possibly but it would have been on the market longer. "Priced right" means (1) buyer pays what they feel is reasonable, even though they might want to pay as little as possible (2) seller gets what they feel is fair, even though they might take less than what they really wanted (3) home sells quickly but not necessarily immediately. A listing is designed to sell and not to be on the books longterm. As soon as there is a price reduction - for whatever reason, the asking price was not right.
Mar 27, 2008 02:32 AM
Jerry LaRose - Orlando Fl Real Estate Expert
Orlando Realty Partners, Orlando Short Sale Specialists - Orlando, FL
Orlando Fl Real Estate Expert, Short Sale Expert

Great Post, Thanks for the information. Keep up the great blogs. Very interesting. I enjoyed reading your blog.

Mar 27, 2008 02:37 AM
J Manno
Summit Realty Group, Inc. - Newport Beach, CA

 

So true, and thank you for the article...

Mar 27, 2008 02:40 AM
Michael Cole
CPG Tours - Corona, CA

Thank you all for your comments. I appreciate it.



Mike: Good question! I think it’s a bit of a moving target. But I tend to look at what tile companies report, because those are the one that have actually closed and recorded.

Ken: I agree. It is a tough situation. But don’t you think that many times what a seller may be satisfied with is way off base? Either too high, or even too low?

Michael:
I like the “How soon does the seller need a closing?” approach. And you’re right, comps are always going to be friend or foe.

Steve: Thanks for the detailed response. I’m starting to see from your response, and those of others, that “priced right” has more to do with the seller’s situation and other factors, more so than just the property.

Jerry:
Thank you for the compliment!

J Manno:
You’re most welcome. Thank you for the comment.

Mar 27, 2008 02:51 AM
Thesa Chambers
West + Main - Bend, OR
Principal Broker - Licensed in Oregon
I have to agree - although your neighbor may have needed to sell this quickly - I know that shortsales and foreclosures are having a negative impact on pricing here  - however a few buyers are avoiding them because they dont want to wait that is a good thing.
Mar 31, 2008 06:54 PM
Michael Cole
CPG Tours - Corona, CA
Hi Thesa: Thank you for the comment. My neighbor no doubt did what was best for them. I guess I was just reflecting on the fact that sometimes a short-term solution (low-ball pricing) can have a very negative long-term effect. But, it sounds like you have some motivated buyers, which is  a great thing!
Apr 01, 2008 12:27 AM
Diane Aurit
LKN Realty, LLC - Mooresville, NC
Lake Norman Real Estate
Priced right can only truly be known after it has sold.  If a home sells promptly then I guess it is willing buyer willing seller and it was priced right.  It's hard to know if this property was priced too low.  Usually if a listing is priced too low there are multiple offers that drive the price back up.  It this doesn't happen, especially in a declining market, then maybe it was priced right.
Apr 25, 2008 08:49 AM
Pam Dent
Gayle Harvey Real Estate, Inc. - Charlottesville, VA
REALTOR® - Charlottesville Virginia Homes / Horse
It all depends on what side you are on.  Sellers are not going to care what the sale of their home does to the pricing for the neighborhood.  It is only a problem for the seller if they did not realize what the actual market value of their home was and they did not make a conscious decision to sell much below market.  Most likely their focus was on selling as quickly as possible.
May 01, 2008 04:25 AM
Lisa Ryan
Callaway Henderson Sotheby's International Realty - Montgomery, NJ
Selling Princeton,West Windsor and Montgomery Town

Michael~ I have to agree with Diane's point.  Usually a low list price will wind up with multiple offers which will then determine a fair market price.  The fact that there are contractors over there could also mean that the interior of the house was not in great shape.

May 14, 2008 02:59 PM
Steve Shatsky
Dallas, TX

Good post.  Very thought provoking.  For what it is worth... I think that "priced right" means that the seller has priced it to bring the right balance of Return-on-Investment and selling time on market to meet their needs.  As neighbors and agents we are often hoping that FMV brings the highest sale price possible, but sometimes that is not the objective of the seller... sometimes they just want out fast at any cost, and it seems to me that someone who hangs a sign that says "Priced like an REO" just wants out yesterday,

May 14, 2008 03:05 PM
Michael Cole
CPG Tours - Corona, CA

Diane, Pam, Lisa, Steve

Thank you all for stopping by, and for your comments. I appreciate that.

It seems that the consensus from all the responses is that being ‘priced right’ is definitely a moving-target, which I knew. But I still can’t help but believe that it’s a bit of a self-perpetuating cycle.

Thanks again everybody.

May 19, 2008 01:04 AM