Here’s an observation that may not be true in all areas, but one that I’ve seen consistently. When a home is for sale, there seems to be two schools of thought:
Price it high, and hold out for a sucker
Here the idea is that all you really need is one person to be willing to pay your bloated price, so you might as well price it 10-20% above what the comps would suggest. Then you wait, not taking any lower offers. If it’s still not sold after 2 months, you lower the price 5%. Again you wait, not taking any lower offers. After another 2 months, you make another 5% drop. Rinse and repeat until you get a taker.
We actually found a place we really liked and put in an offer for what we thought was slightly below market value but fair (and what we were willing to pay). Let’s say it was listed at $600,000. We offered $480,000, and was promptly countered at $580,000. We walked away. The problem with such an annoying seller is that sooner or later they either keep lowering their price, or all of sudden get desperate. The market is getting softer, and it ended up selling at $475,000 to another buyer 4 months later, below our initial bid!?! Very frustrating.
This type of thing probably worked a couple years ago, but now it just seems risky and annoying unless you really don’t want to sell. Sure you might get lucky, but chances are you’ll be holding on the house for a long time.
Price it low, and get it sold quickly
The other type of seller lists it for under market price by 5-10%. When a house is first listed, you have the greatest amount of attention from every buyer looking for a similar house. You can generate buzz, and hopefully a bidding war. The seller may not get every last penny, but the house is sold and they can move on to the next deal. After the first week or two, you’re just left dealing with any new people looking in that area, and interest drops off significantly.
My feeling is that if our sellers simply listed at $480,000, they would have gotten multiple offers and could have played them off of each other, possibly ending up with a final price $500,000. But they decided to gamble, which didn’t work out for them but could still do okay for others.
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I’ve heard real estate agents suggest pricing the property at 2-3% above comps if you are not in a hurry to sell. This is enough to account for low ball offers, but still not too much to inhibit interest. If you’re looking to offload the property in a month, you may want to price 1-2% below market for exactly the reasons you talk about. I’m in a situation right now to wonder how I should go about pricing my home. I don’t need to move, but would like a place closer to work. I am thinking of listing at a high price, especially since my property is somewhat unique to the area and there are no close comps. Also, having it on the market for a year would not bother me. On the other hand, I have read that having a property listed for too long will make people wonder why the house is not selling and cause them to make lower offers than they otherwise might submit. On a recent airing of 60 minutes, Andy Rooney was commenting on a book someone sent him called “1001 Tips for Selling Your Home”. He says “Well, I don’t really know about the other 1000 tips, but it seems to me if you want to sell your home quicker, lower the price”. So true.
Man, this reminds of the strategies for market investing…. hey wait… 🙂
I’m really surprised that Mr. 580k didn’t call you back before unloading at 475k. Maybe he just figured that nobody actually holds out for four months when buying a place.
I would daresay that strategy 1 only works if you have a clue and don’t need to go anywhere. Truth is, it’s no different than any other market. Interviewed a guy a few months ago for programming position. He said that he wanted to move out of his position into a managerial position (b/c his current job wouldn’t give any managerial experience) and that he wanted a salary higher than what he was making (and higher than what I was making).
He was applying strategy #1, but he didn’t have a clue. He didn’t really know what he was worth, he wanted top dollar but couldn’t pass our programming question, and he probably didn’t get that his zero managerial experience at his current company didn’t really instill me with confidence. So he priced high and held out and got totally burned.
Again, only price high if you don’t need the money or if you can really justify the money. Waiting for a sucker is a dangerous move, but hey, what’s new 🙂
You certainly are right. Both types are prevalent, just many more of the first. Maybe they think it is a different market than it is but many I’ve talked to don’t have to sell but will at the right price.
I think there is a naive and perhaps confident seller who price high and won’t take lower, but I believe the majority of sellers in this “high price” category is in that position due to the fact that they have to net a certain amount on the sale. Perhaps they need a certain amount because they need it to move on, or they need to pay off liens and the sudden market turnaround was a big surprise. Its best to be in the low price category, which is usually reserved for those that have lots of equity and room for negotiations. I recently put my condo for sale and got it into contract soon, I went with buyer’s incentives such as prepaid HOA for a year, closing costs credit etc rather than price. I feel that incentives that allows the buyer to get into the property easily does the trick. To anyone thinking about buying, go and make offers now. There is still a lot of uncertainty in the market and it is this time that a lot of sellers are willing to work on price and terms.
Another theory is that sometimes an RE agent will promise the moon in order to get the listing. After they lock it in, then they can wait until the market tells the client they are asking too much. Not exactly in the best interest of the seller, but I can see how it can happen.
I can completely understand how this is frustrating for a buyer, but for a flexible seller who doesn’t need to move any time soon, how is this a bad idea? Perhaps the price hit for being a ‘long time lister’ is more than the 5% markup that a flexible seller can list for, but it seems like a reasonable gamble to me.
I don’t think there is a better or worse option here. I think it’s all about the seller’s situation and what they want. If you NEED a quick sell, price it to move. If you want what you think it’s worth or what it’s worth, price it accordingly and wait. As soon as I get my house fixed up and presented to sell, I plan on listing it. I’m going with no RE agent and listing it at or above the price I want. In my case I’m in no real hurry to sell so I’ll keep it on the market for a long time if I have to and as time goes I may even actually go UP on the price over time.
To add. They aren’t making any more land and I’m not going to GIVE mine away just because the market is soft. I’ll rent this bad boy out before I sell it well below what it’s worth.
Wow, Robert, listen to you! “They aren’t making any more land”…”I’m not going to give it away”…”I’ll rent before selling below what it is worth”… those lines were classic, circa 2005. The only one you are missing is “housing always goes up.” But I’ll forgive the oversight. 🙂
Your house is worth what someone else is willing to pay, not what you “want” it to be worth. There is one person who holds all the cards when buying a house: the BUYER. He/she can make an offer of what the house is worth to them, and if in Jon’s case a counter-offer comes back that is clearly not even in their ballpark, they can just walk away and look elsewhere. The buyer has no commitment to the purchase, as they can choose to look at other houses, or not to buy any house until the price is right for them. But a seller will always have a reason why they absolutely must sell theirs: most common is changing jobs or moving. Houses are for sale everywhere! If you, as a seller, wait for a year because you don’t “have” to sell, you are paying another year of carrying costs on the property… that money is lost. The market during that time could increase or decrease, but who knows? The only certainty is that the year of waiting was a 100% certain cost. Not to mention the time spent keeping it clean, etc… If you don’t “need” to sell, then why is it on the market in the first place? Is this some kind of house you are speculating on via a flip? And if not, are you not planning on buying another house in the same area? If so, then just sell yours at market and buy another at market.
Pricing a house is just like pricing a low-volume stock with a limit order (except even worse because a stock does not have carrying costs). If the market price is $100 and you decide to sell with a limit order for $105, you might sell eventually, but your order might also expire and you have to decide whether to stay at that price… and the market might have moved up or down while you were trying to nickel-and-dime an extra few bucks. If the market price is $100 and you sell with a limit order for $95, you’ll sell instantly, oftentimes higher than $95. If the market price is $100 and you price it at $100, you will sell in a reasonable time, purely as a function of the volume of the stock.
What’s this price it high or price it low garbage? Who are you guys kidding? Just price at comps, and if you think the volume is slow at the comps in your area, go a little lower.
If I am going to buy a house then i ll surely negotiate on the price of the house whatever the price is quoted to me, i think this is the general trend when you are out for a huse purchase.
On the other hand if I am a seller I ll keep the above (negotiation factor) in mind and price it slightly highter than my target price.
I understand how the house selling for less than you offered is frustrating. I’m not sure that it’s fair to call the sellers annoying, though. You offered 20% less than the price at which the sellers listed the house. That seems pretty steep. Making a counteroffer that wasn’t very close to your offer doesn’t necessarily make them annoying, especially when considering that they dropped $20k from their original price. At that time, they clearly didn’t think that anything anywhere near $480k was appropriate. It’s perfectly reasonable for the two of you to have differing opinions on what price the seller should accept. Furthermore, I don’t know that it was reasonable to expect them to drop anywhere close to $480. Definitely possible, but it shouldn’t be expected. So the fact that they didn’t seem to do much with the $480 offer shouldn’t be considered annoying.
The second issue, that the sellers ended up accepting slightly less than you offered, is frustrating. But again, I don’t think that it reaches the point where calling them annoying is fair. Perhaps they had plenty of time when they listed the house but used up that time while the house was sitting unsold. Or perhaps they realized that they couldn’t get what they wanted for it. I don’t think there’s anything wrong with asking whatever you like for your house, even if it’s ridiculous. Buyers aren’t required to pay that. Nor do buyers have some sort of right to expect sellers to accept what the buyers believe is a reasonable price.
See the timely link below. Looks like some consultants actually did a study of the issue, with the conclusion that homes that start out priced too high end up selling for less than homes that were priced lower to begin with. Interesting to see some numbers on an issue like this.
http://www.mercurynews.com/businessheadlines/ci_7280842?nclick_check=1
Heh, I’m just being bitter because they never got back to us regarding our offer even though it was higher than the one they eventually took. I’m sorry, but that made me feel annoyed 😉
yes jonathan, it kinda irked me too as a home owner. Many things could have happened between the drop from $580K to $475K.
They started to get desperate and sold to the $475K perhaps to someone who offered an all cash deal offer and a closing date of within 3 days. Perhaps they took the house AS IS, and not subject to inspection. U never know.
In this market, cash is king. I was able to get favorable terms using cash and a very very very short closing date.
hey jonathan,
If that person did contact u after 4 months and said they would like to take ur offer at $480K….u know what u would do??? u would say well that offer was 4 months back, im sure prices have dropped even more……can u do $450K? 🙂
Folks, here is a good question to ask a realtor if uw shopping for one.
If a house is priced at $500K, what would u recommend to us to offer at?
I used to have a realtor that if the house was $400K, he would say, u can put a bid for about $392K. This was few months back (and not in a super hot market area too)
To cut things short, i paid $350K for a $400K home, using another realtor.
Fair enough. It seems that it would have been a good idea for them to have contacted you once they realized they would have accepted somewhat less than they originally asked.
I like well priced homes the best, as do most people. The best situation to be in is to find a nice home that’s well priced and then bid asking price + 2K. It’s a pittance of a difference, but it compliments the seller on their home and their asking price and really drives home that you are a serious buyer. Overpriced houses are annoying because you feel like you are being insulting with your bid, when in fact the seller is being unfair. It’s so much better the other way. When I sell my home, I’ll try to remember this.
I’ve normally found that any property is quoted at a 10% premium to what the actual price is.
So if you multiply the listing price by 90%, you get what the owner normally once………..but that’s before any negotiation 🙂
I would go with “Price it low, and get it sold quickly”. I did it successfully when I sold house few yrs back.
It works.
I work for a realestate agency in australia, and what we try and get our vendors to do is put the home “for sale by negotiation” this way:
1. We dont scare buyers away by listing a price
2. We are able to get offers and condition the seller
3. We are allowing the maximum amount of prospective buyers to view the property.
It is a great way to list a property especially when the seller wants to price it too high…
As an active real estate agent I would like to comment on some of the things written above in response to the original article.
– In this buyers market, I walk away from any listing that the seller will not price right. That means, you’re at market value or 5-10% below and are willing to review that pricing in 90 days. Anything above without a guaranteed 30 day price reduction to BELOW market value and you’re looking for another agent.
– Homes are still selling but sellers must understand that the time of pricing their home 10% above market value and creating a bidding war, like 2 years ago, is over. And expect to sit on the market for 8-10 months with maybe 1 showing per month.
– Despite this being the worst market since the Great Depression, I’ve still managed to close well over 20 transactions this year and would be closer to 40 had I not taken 6 months off for personal reasons. And that’s in a small town with over 400 active agents.
– I also recently moved into a new home due to damage to my old one and the deals out there are incredible. I bought my home for $38,000 below market value, got 3% towards closing costs and pocketed my 3% commission. And it was a brand new home from an investor. They’re getting what they deserve for running up the market like they did.