This is one of those things that I hear about all of the time. I face it all too often. I go on listing appointments and either an agent before me, or one that comes later “buys the listing“. Of course, not literally, but figuratively.
They tell the seller what the seller wants to hear… regardless of reality. They tell the seller that they will sell the house for more money. It is an appeal to the ego… and sometimes even defies logic. But, it gets the listing. Obviously, the seller generally wants to hear that their house is worth more.
It usually happens for one of two reasons… the innocent one and the not so innocent one.
The innocent reason is that the agent just doesn’t know any better. Through inexperience or bad data or poor technique working with the data… or even misreading the market climate… they arrive at a price that isn’t really realistic. And the window for a price is pretty small. At 20% over real value, the house likely won’t be seen in the current market. At 10%, many of the prospective buyers will dismiss the house even if they come look at it (most buyers won’t make a serious offer more than a few percent off of the list price). Even at 5% over reality, many prospective buyers won’t offer… or they will push it to the back of the line.
The “not so innocent” reason is that the agent KNOWS that the sellers will list with them if they give a higher price estimate. It is a LOT more common that most sellers would think. In fact, there is an entire sub-industry in real estate involving strategies and support for these agents. One of the popular strategies is to build in price reductions at predetermined intervals. The sellers should ask a simple question… “If you are confident of the price, why would you build in price reductions?” Of course, the market DOES shift, sometimes unexpectedly.
The idea, as stated in much of the materials supporting this strategy, is that the agent can tell the seller, “OK, we’ll try it at your price, but if nothing happens in 30 days, we’ll cut the price to ____.” There is always the chance that there will be a buyer that will drop out of the sky, with cash (since the asking price might not clear an appraisal) and no desire to have an appraisal of their own done. But… not that likely. And that is where the issue I take with this as a deliberate strategy begins. We know, from tons of studies, that over-priced houses generally end up selling for less, after spending more time on the market.
It goes like this…
- The house starts off as over-priced, so it gets fewer, if any showings.
- After a period of time, the price starts to ratchet down… but it has already missed that magic window (when a house is first listed) when the most buyers look seriously at it.
- Since it has been on the market longer, the buyers that DO run across is wonder WHY it has been on the market so long.
- Vicious cycle…
- Price gets cut more to get showings.
- When the offer comes in, it is lower than it likely would have been to start with.
Here is the post I wrote about this very issue a couple of years ago.
- Wayback Wednesday… For First Time Home-buyers… (lanebailey.com)
- Wayback Wednesday… How Were My Prognostications? (lanebailey.com)
- Wayback Wednesday… Absorption Rate, What Is It? (lanebailey.com)
- Wayback Wednesday… To Finish or Not to Finish, That is the Question. (lanebailey.com)
- Wayback Wednesday… The Dirty Little Secret… (lanebailey.com)
- Wayback Wednesday… Zestimate Accuracy in Atlanta (lanebailey.com)
- Wayback Wednesday… Median Home Prices (lanebailey.com)