When the market speaks, listen!
Originally appeared in Hills Publications, Dec. 19, 2003 and ANG Newspapers, Dec. 20, 2003
When the market is rocketing upward at a dizzying pace, pricing mistakes can go unpunished. During an intense seller’s market, overpriced listings still sell, sometimes for outrageous sums.
Today’s market, which remains quite active, is not as frenzied as at its peak. For buyers, this is good news. For some sellers, the biggest problem is still thinking they can dictate price. They eventually discover that, despite the strength of their convictions, it is the market that determines value, not their hopes, dreams or needs. Over time, the market will “normalize” and this concept will gain in significance.
Not heeding advice
Not long ago, an experienced, local Realtor had been in contact with an area homeowner for more than a year, in preparation for listing the home. The property was extremely spacious and located in an excellent location, near shopping and good schools. Unfortunately, it was a style that is not prized by most buyers.
During the pre-marketing period, the seller made numerous, costly improvements to the property, without ever seeking the agent’s advice on which items were worth the investment and which were not. When complete, the house had some desirable features and a number of drawbacks.
As the months went by, in order to give the seller a better feel for pricing, the Realtor offered to show him new listings he felt were comparable to the seller’s. The seller rebuffed those efforts, saying he knew the market.
When all the work was complete and it was time to list, the agent asked what price the seller had in mind. The seller proclaimed a price his agent felt was above reality – by about $200,000. In response, the real estate professional suggested what he considered an asking price that would elicit interest and offers.
The seller, who liked the agent, said he would list for the higher price and not a penny less. Not wanting a grossly overpriced listing, the agent recommended that the seller list with someone else. A short time later, the home was listed – for $100,000 less than the seller’s original price, but $100,000 more than the first agent’s opinion of value. Eventually, the price was lowered by another $100,000 and the property sold slightly above the now realistic number.
There are three points to this story:
- Had the seller listed at the lowest price initially, he would have had a chance of multiple offers, and, ultimately, a higher return to him. At the very least, it would have sold sooner.
- Choose your Realtor carefully, and, once you decide, rely on his pricing recommendation. This should, of course, be substantiated with a Comparative Market Analysis. Why hire a professional if you are not willing to accept his advice?
- The value of your home is independent of your opinion. It is what it is. The best agents do not have the emotional investment you have; they can be objective and rational.
Reverse thinking
Sometimes, out of need or stubbornness, sellers refuse to acknowledge what is right in front of them. Every agent who has been in the business for awhile has talked with sellers who say, “The house across the street sold for ‘X’, and, if it sold for that, my house must be worth ‘Y’ (much more).”
These kinds of statements are invariably wrong, but it is not easy to tell this to a seller without upsetting him or causing him to believe you do not like his house. No matter how tactfully put, a seller who has made up his mind will not hear anything contrary. When the styles are not compatible, i.e., the neighbor’s house is a more popular style, and prices are leveling off (the other house sold nine months ago and the market is now cooler), it is even more difficult to convince the seller of the truth.
The ultimate backwards thinking is when a seller says his house did not sell because it was listed too low. The argument is that all the “good” buyers did not make an offer because they thought something was wrong with the house. Usually, this lack of logic is from an individual trying to justify a locked-in belief about the price. In actuality, agents with buyers ask about condition.
If the listing is in the Multiple Listing Service and it has received full marketing and exposure, it is implausible that it did not sell because of underpricing. People love bargains, and if something is a “deal,” they will try to buy it quickly, before someone else discovers it. This usually leads to multiple offers, raising the price.
Factors influencing price
Sellers generally do not think about many of the variables considered by real estate experts when it comes to pricing. The following is a list of some of the items that can usually add to the value of a home. A lack of these features tends to diminish the selling price:
Desirable location; character and charm (older property); attractive inside and out; sunny, light and bright; good schools; proximity to schools, but not next door or across the street from a school; level-in or few steps; excellent condition; nicely remodeled kitchen and bathrooms; a feeling of the outdoors from inside; a lovely, level backyard (size is a matter of personal preference), with level access from one or more rooms; a master bedroom with full bath; a quiet, tree-lined street; newer roof, furnace; electrical/plumbing upgrades; seismic retrofitting; and a garage with indoor access.
Final Thoughts
Hiring a Realtor is expensive. It is more costly, however, to have a competent real estate representative and disregard his suggestions. Worse yet is to choose the wrong agent while thinking you, the seller, have the process mastered.
A seller’s job is to prepare the home for sale so it looks its best. If that is done and it is priced for what and where it is, you will net the most dollars. Believing you know more than top professionals is a mistake you can avoid.
Related Articles:
5 P’s for Sellers,
Seller’s Do’s and Don’ts, Part 1
Seller’s Do’s and Don’ts, Part 2
Shifting Market Strategy