Good news and bad news about common strategy
By David Fletcher
This column is addressed to every home seller in America. Your obvious goal is to get the highest possible price for your home.
I’d like to share a little-known process about how you can get more showings per day than all the competition on your side of town. Also, I’m offering some tips on how to get more qualified prospects per day — and there is a difference.
It has to do with your pricing strategy.
- One strategy is to price it right and sell it.
- Another is to price a little higher than market price and expect offers.
- Another is to price it over the moon and hope someone comes along who just fell off the turnip truck.
The latter is the most common strategy among sellers, and this is the one I’d like to focus on…
Let’s say homes like similar homes in the neighborhood are selling for $200,000, and the seller has spent $5,000 upgrading it for sale. So, the seller insists that the price has got to be at least $205,000.
The seller doesn’t have any equity in the home, and needs at least $10,000 to purchase a new home, so the seller adds that amount to the price, making it $215,000. The seller demands to get at least $215,000, and won’t sell otherwise, and an additional $10,000 is added to account for the real estate commissions, making the price $225,000.
But wait. We know that resale buyers are counseled by their agents to “make an offer,” that in many markets these days will be below asking price, so you need to add another $10,000 or so (the seller is advised to try to keep it within 5 percent of what the seller will accept, if possible).
So — there it is — mathematically we have arrived at a listing price of $235,000. There is nothing emotional about this. It is all about the numbers. This is a really easy and fast way to determine a listing price.
There is some good news and unfortunately some bad news with this “strategy.”
- The good news: The seller’s home will be shown by the smartest Realtors in the area, and will get a lot of showings.
- The bad news: They will be showing it as what is called “sell against” — to help build a value story for the homes down the street, which their prospects will actually purchase for around $200,000.
- The good news: If the home does sell for $235,000, the seller will cover all expenses and have money left for a down payment on another home.
- The bad news: Many agents will not show the home to prospects who don’t want to look at homes priced over $200,000. This is really bad news if you actually need to sell the home.
- The good news: The seller will not be disrupted by a move.
- The bad news: The seller is not going anywhere soon — the longer the home is on the market in an overpriced condition, the harder it will be to sell.
I am on the seller’s side. We all know that the only reason a commissioned sales agent would suggest a salable listing price is that the agent would like to earn a commission by helping make the home salable — regardless of who sells it.
Here’s where this gets a little sticky when it comes to price: Usually, when the agent suggests a price the seller becomes flabbergasted and insulted, wondering how the agent could dare mention such a low price.
It is the same feeling the buyer gets when the agent mentions the asking price of the same home — except they feel insulted by the seller, not the agent.
Here’s where (speaking to the sellers out there) we need to meet in the middle with some quantified data (a fancy term for factual, relative information).
The seller should insist on seeing a comparative market analysis* (CMA) to view what similar homes are selling for, are now listed for, and did not sell.
Here is the real question the seller must answer as accurately as possible:
As the seller looks at the data — especially the “solds” from the last six months or so — the agent needs to ask this question: “What do you think a reasonable buyer will pay for your home?’
What better way to answer that question than for the seller to see what similar homes are actually selling for?
The seller probably won’t like the answer, but will likely thank the agent for sharing this information. Because it will prepare the seller to make the best decision. If the market prices are too low, and the seller chooses to wait and hope the market comes back in the next year or two — fine.
The seller could decide to list at any price the agent might suggest, but shouldn’t become upset with agents who are giving honest information and advice. Although the agents may be trying to help the seller, the truth can hurt.
A listing that goes to the “highest bidder” — the listing agent who gives a nod to the seller’s unreasonable price — doesn’t make sense to the seller or the agent, although new agents and those who “need a listing” might accept it.
The seller and the agent know it is only a matter of time before the price is lowered, whether that’s “if it doesn’t sell in two weeks,” or thereafter. This is an OK approach in a market that is moving up, but in today’s market … not so good.
Agents are likely to show their buyers the same CMA they show to sellers, as a way to prevent lowball, insulting prices.
A seller can have confidence in the CMA — and a lot more confidence in the probability of a faster sale at the highest possible price — if there are multiple showings to qualified buyers. And that is the numbers game that sellers should really want to play.
What kind of experiences have you had pricing your house to sell? Good vs. Bad? Not sure? Contact Patrick Parker Realty for more information about pricing you house right the first time.