Another in the continuing saga of questions I get asked…
Lane, we want to sell our house, but we don’t want to give it away.
And the companion question:
Shouldn’t I pick the agent that wants to list at the highest price?
Let me take question two first. No.
Ok, let’s focus on the other question and you’ll see why I gave the answer for the second question.
Agents don’t really set prices. The market attempts to set prices. Agents are guessing the direction of the market… nothing more. Let’s kick out an example to illustrate:
The subject property is going to be an average house in a subdivision with average prices around $350k. Just like the other houses, this one has a 3 car garage, 4 bedrooms, 3 full baths and 1 half bath. It has a basement, and the average recent price of the basement lot homes in the subdivision is about $375k. The basement is also stubbed for a bath.
It should be pretty obvious that this property would end up being sold within a few thousand dollars of the averages, since it is an average house.
If an agent says she will list it for $1m, should she get the listing?
The obvious answer is NO. In fact, I would say heck no. NO buyers are going to look at it. It won’t be in their search results. The buyers would assume that the sellers are cranks, and if they saw it while driving to other properties in the area, still wouldn’t look at it. The chances of an offer would be seriously low. Even at $500k, it would be much the same… in fact, as it gets closer to the price it would be worse. At $1m, it is obviously crazy. At $500k, it is apparently crazy. At $400k, it just looks too high. At least under $400k, there might be some viewings.
But, if there are other houses in the area that are comparable and less expensive, and there isn’t something that sets the house apart, it isn’t going to attract an offer. Think about it for a minute. If the house up the street is largely similar, why make an offer on the house that is $25k more? There simply isn’t a reason.
Even if there is something that sets it apart, it is up to the buyer to determine if that something is worth the price difference. Back to the subject house…
Now the basement is finished. It has a media room and then outside that, there is a pub, a wine cellar over in the corner… pool table and gaming area. This is very nice.
But, Mr. and Mrs. Buyer need a couple more bedrooms. They have a whole basketball team worth of kids… and a couple of cheerleaders, too.
How much value does the media room add for them?
If your number starts with a minus sign, you may be in the ballpark. They need a basement with bedrooms. So, on to the next buyers. They need an In-Law Suite. Next. Family with two kids and they LOVE movie night. Bingo. We have an interested buyer, and this adds value for them.
And THEY will determine how much it adds.
I am a car guy. I love cars (and trucks, Jeeps, motorcycles…) and like to see big and cool garages for those wonderful toys. But no matter how hard I hit someone over the head with a 4 car garage, if they have a bicycle for work, and a Smart car for vacation and think that is all anyone would ever need… they aren’t going to see the value.
So, we know that buyers decide what they are willing to pay…
And it is up to sellers to decide what they are willing to accept. you don’t have to give it away. You can also keep it… if anything less than $30k more than what a buyer is willing to give is giving it away.
I told some sellers earlier this week that they should wait to sell. They don’t need to sell. They want to get a price that the market isn’t going to support right now. It is a great house, but needs some updating (honestly, most houses need some updating…). They can take some time and update it… and enjoy the updates. In a year or two, the market may catch up to where they want to be.
If I were to list it at a price it wouldn’t sell at, I certainly wouldn’t be helping them. In fact, all I would be doing is annoying them and giving them false hope. Lying and saying that I believe it would sell is just wrong if I know I’ll be asking for a major price reduction in a few weeks.
I don’t set the price. The buyers decide what they are willing to pay. The sellers decide what they are willing to give. My job is to figure out what the right buyer should be willing to give. And what the right seller should be willing to take.