Tonight we had dinner with a good friend (we'll call her Jill) and as usual, the topic of conversation turned to real estate. Now, Jill is one of the top four agents in town. She is equal parts listing and selling agent and does both well. We worked across the hall from each other for years before Kathy and I left to open an office.
Although I haven't been posting many the past few weeks, I'm a fanatical market tracker. I keep incredibly detailed stats on each segment of the market and have seen 99% of the homes that are on the market. While I realize there is a "feeling" factor in real estate, I can assign that feeling a number. I can't remember the last time I misjudged a selling price by more than 2%. I mention this for a reason, which isn't to pat myself on the back, btw. Stay with me for a second.
I mentioned to Jill and her husband that we had met with a potential client this afternoon who was looking to relocate to warmer climates (some folks are just lightweights - haha). Kathy and I looked at the house Thursday and met with the sellers again today to discuss pricing and review comps. The house was immaculate - the sellers had renovated just about everything that could be renovated. With only a couple of very minor exceptions, the house was flawless.
We sit down to start going over numbers and as I'm going through the comps and the adjustments I can see the husband and wife looking at each other. The kind of look that says, "Did you let this fool in our house?" I get through the comps and hand them each a summary; a single line breakdown of how I arrived at the adjusted value for each comparable. At the bottom of the summary is a line that reads "Range of Market Value - $________." I leave it blank so they don't simply focus on that and forget everything else.
Now we're down to price. I give them my range, which as it turns out is about $20,000 under what someone else gave them a few days ago, which is about 12% over what I believe is market value. I've traveled this road before and am ready. We discuss the overall market - I give them my January and February market reports and the 4th Quarter '07 report, all of which shows a still downward trending market. We discuss absorption rates - yet another handout of rates for the overall market, their general area, and finally their general area in their value range, which today is 20 months worth of inventory. It's not a rosy picture.
After about an hour Q&A session they say they want to think about it and will call me tomorrow. No problem. We thank them, scratch their dog behind the ears one last time and off we go. I'm not into high pressure. I have always believed that the right information would work infinitely better than a high pressure sales pitch. So far that approach has served us well over the years. Still with me?
Tonight at dinner I relay this to our friends as we laugh over how difficult it can sometimes be to break through the emotional value sellers have attached to their home. It is at this point Jill says something I never expected to hear. "You should have just told them you would list it at the higher price." I almost dropped my glass. When I asked why she said that if a seller is married to a price she would rather take the listing and when it doesn't sell, gently remind them the asking price was their idea and go for a reduction. "Eventually the house will sell, and probably at or close to your number, but it won't matter if I have the listing. I'll get the commission and you won't. How does walking away from the listing help?"
Not that I haven't taken a listing that was a little over market value, because I have. However, as a rule I tend to wish those sellers well and decline the listing if I can't get them within at least sight distance of what I know to be market value. Jill was adamant that I'm crazy for turning any listing down unless it's obscenely unmarketable in price or condition. "Get the listing first - deal with the price reduction once they are under [listing] contract. Otherwise you're throwing money away."
I'm having a very hard time with that train of thought. Isn't that simply "buying" the listing? Oh, sage ‘Rainers... I need your opinions... am I off my rocker for turning down what I deem unsalable listings or should I say the heck with worrying about value and just get the @^&$(# listing?
***** UPDATE****
I want to say thanks to everyone for commenting... I was truly having issues with the list at all costs approach. After reading your comments I'm still of the opinion that "list at all costs" is not the approach we are going to use. Exceptions will be made as appropriate but unless we're on the same page with respect to price I'm not biting... unless the client wants to pay my $350/hr consulting fee... then they can name their price.
As a side note the property I mention above, at least according to the comps, is worth between $245,000 - $255,000 with at least a dozen comps supporting the price. Another agent in town that is not very active just listed it for $300,000. At that price I have a better chance of being crowned the Queen of England than that house does of selling. Yikes. Thanks, but no thanks!
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Jesse & Kathy Clifton, better known as 'The Spouses' are full time Realtors serving Fairbanks Alaska buyers and sellers. They specialize in residential real estate; new and existing construction as well as undeveloped land in Fairbanks, North Pole, Ft. Wainwright, Eielson Air Force Base and Interior Alaska. Visit their website to review the fee market reports designed to keep you updated on the local Fairbanks Alaska real estate market. Have specific questions? Feel free to contact them anytime. They would love to hear from you.
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Jesse & Kathy,
My opinion is going to be very unpopular with Active Rainers...I agree with Jill...ultimately the one who really determines what a house is worth is a bonafide buyer...not an appraiser, not a listing agent, and not a seller...The seller contracts with the listing agent to get the maximum sale price possible! JMHO, Thanks, Fran
Jesse & Kathy...Tough call. I prefer not to take these types of listings because it can create a lot of problems when they aren't being shown. If you can get them to agree to reduce in 30 days for instance, to your recommended price or close to it, it might be worth doing. Now if they've had a lot of showings in that 30 days that may tell you something and if not that's telling them something. Try hard to get feedback from the agents that do show.
Good luck,
Kathleen
In our office, we don't list properties that are way over priced. All our listings are advertised each month until sold, so an overpriced listing is money down the drain. If you aren't advertising the listing, then YOU may not be losing any money, but your SELLER just might lose out in the long run. We generally try to show sellers that if the house is overpriced in the beginning that they tend to get less in the long run. I am sure that you have already explained this to them, but if you have some cases in point, that might help. There are a couple other things that we try. 1.) Offering to pay for an appraisal of the property (to be reimbursed at closing) OR 2.) Having predetermined price reductions. If you are just taking the listing to be the one with the sign in the ground at the time of the sale, I do believe that is a dis-service to the seller. Thinking about this further, maybe having the seller sign a disclaimer would help. Sometimes we have buyers that flat refuse to have home inspections, so we have them sign that we have counseled them to have inspections that they they are moving forward with this purchase against our better judgment. This protects us from possible claims later when they find a failed septic or the like. I wonder if you have the seller sign a disclaimer that they are listing the property above market value if it might make them think about it, maybe including the possibility that it won't appraise and therefore can't be financed at that price. It's a tough call, but ultimately I think I would prefer not to have an overpriced listing... even if it is in pristine condition. Good luck.
I've made some good money over the years from "overpriced" listings - In spite of all my superior analytical skills, sometimes buyers and sellers DID agree on a higher price than I would have imagined. However, they were homes in great condition.... 'not sure I would take a filthy mess in a bad location that is also overpriced. It's a judgment call on your part and depends, in part, on whether you have a large or depleted inventory at the moment.
I think most of us have taken an over priced listing in our time. It is a pick and choose sort of thing. If I feel that the Sellers are open to new pricing down the road once they see their price did not cut it then I will go ahead. If I feel the Sellers are going to be tough balls from the get go then maybe not. It all depends on the chemistry between me and them. Andrew Lenza wrote an interesting post on Important Notation on the Listing Agreement which you may want to read.
It would depend on alot of circumstances for me. If I did take it I would make sure they know that if and when they do get a buyer at that price, it is still going to have to appraise and we just wasted x amount of months. I would make sure I was getting feedback from every showing and giving it to them. If other agents are also saying it is overpriced this may help them realise this. If they are still looking for a home themselves they may not be overly motivated at this point. You could suggest that they get an appraisal done? You could print out some articles on the importance of pricing your home right from the get go and the fact that most of your activity comes in the first few weeks. Good luck and let us know how it goes. You could up your commission since you are most likely going to be stuck w/ it longer, saying if you price it at this my commission is x and if you price it at this my commission is x.
Hi Jesse and Kathy,
I guess it depends on how much it is costing to advertise the house. It is not good to be known as an agent that "always overprices their listings." But, it is ultimately the sellers decision and if they will agree to reduce the price in 30 days (if the home gets no activity) I would take the listing. Then you would get a seller that is bad mouthing you for turning them down.
I would have taken the listing with the understanding that if it didn't work we would have to come back to value. I would also disclose that their best chance of selling the house is in the first few weeks of its marketing and after that it may take awhile. So, put your best foot forward. My reccomendation is XXX but if you wont do that I will work just as hard at merketing your price of YYYY.
Jesse...
For whatever it's worth I will give you my opinion.
Over priced listings will eat you alive. But having said that each situation is different.
Sometimes you know right away that the Seller will be agreeable to a price reduction in due course.
Other times you know the Seller is never going to reduce that price.
So as you see...Sometimes we just have to go with our gut instinct.
But buying a listing? Never. Ever. Not for me. Not my cup of tea :)
TLW...ROAR!
I am going to stay out of the controversy altogether.
Your title was so creative, what a clever use of words! I always appreciate anything that makes me smile. You gave me a smile today.
Thanks.
I look at the bigger picture when it comes to overpriced listings. If I feel that I have a seller that will work with me and set a timeframe for a price reduction if no offers come in I take the listing. If I have someone that does not "get it" and I feel that this will turn into a difficult relationship I will walk. Will that listing eventually sell also, yes it will. The price will be paid in my blood, sweat, and tears. I'm passionate about what I do and I take it very seriously. I consider my quality of life. Late night angry calls from disappointed sellers is not what I'm (or my family) looking for. I have reached a point in my life that I realize what we invite into our life impacts everything.
Jesse & Kathy, I think even sellers know the buying the listing game. They just like denial and want someone there with them. If you want to sit just price it high and you will achieve that objective. But as a Realtor you are wasting marketing dollars until it comes closer in range. Maybe the other Realtor did no marketing up front until the price came into line.
I definitely have a walk away point on pricing, Jesse. It's not a percentage, but a gut feel. If I know the price that the seller wants to attach to the listing is not realistic for producing offers, I just don't want it. In this difficult market, many well priced homes are not selling. The overpriced ones don't have a prayer. I won't waste the seller's or my time marketing a home that I am not confident about selling. More than the advertising expense, it's the opportunity cost that I can't stomach. I'd rather have a buyer in my car or be working with another, more appropriately priced listing than killing Sundays holding a poorly positioned property open. The "list at all costs" approach is definitely old school. I'm more middle school. Great topic for a post, boss.
Fran - I'll agree with that, but at what point do you walk away? For us it's always been if we felt the sellers were unreasonable. Jill believes we should simply take the listing no matter the price and then deal with the reduction. I'm just not so sure the possibility of a commission is worth the headache.
Kathleen - A built in price reduction would certainly work, but in this case they were too far from reality.
Katherine - "Ultimately I think I would prefer not to have an overpriced listing..." That's the conclusion we came to as well.
Margaret - Truthfully I've been surprised by a selling price once or twice, but in a down market 'overpriced' can truly become a curse. For this particular house I saw no money being made, but a lot of headaches. Not my cup of tea.
Martha- I remember that blog from Lenza... the issue is taking the listing at ANY price. just get them under contract and let the market teach them a lesson. I just don't know if that works for me as a strategy.
Megan - The appraisal hurdle is sometimes a major issue - what typically happens is an unhappy seller when an appraisal falls short and the buyers come back and ask for a value adjustment. Force feeding them showing feedback seems a little like getting someone else to do my homework for me, especially when I know the house isn't worth anywhere close to what they are asking.
Leslie - It's funny you mention that. I actually listed a house last fall because a seller referred a friend to me. We met with them and didn't come to an agreement on price - they listed it with three agents before it sold. The eventually told their friend they should come to us if they wanted to sell it.
Matthew - All good points... you know the more I type the more I find I'm solidified in my position of not taking them unless I know a seller is within sight distance of what I know to be value and what it will sell for. Thanks for commenting!
TLW - Gut instinct it is... that's pretty much served us very well over the years.
Douglas - Controversy? This is tame... stick around, I'm sure we can stir up something truly fun to watch. :)
Jean - "I have reached a point in my life that I realize what we invite into our life impacts everything..." Jean, I think we're in the same place in life. We're very comfortable with where we are and if sellers are unwilling to take the advice we're paid so well for... then they are free to have at it with someone else. I don't need the grief.
Gary- I think they do as well. They want someone to agree with them... the problem is when the house doesn't sell, they are still in denial and assign blame on the real estate agent for not selling the house OR getting the price right. No, thanks. I would rather start out on solid ground or not at all.
Paul - My walk away price is pretty close to my range of value.. in a upward moving market I'm more apt to give a little where price is concerned, but in a down or flat market, I'm not likely to go much over. I'm with you on the waste of time aspect as well. I have better things to do.
I think you did the right thing telling them the truth, I've walked away from a few listings and when I see them never sell, I hope they call me, but usually they live their a few more years before they get price they were hoping for. Listing at the higher price is always a waste of advertising money!
Todd