Last week I pulled out of my driveway and started driving down the street to find one of my neighbors homes was put up for sale – and I did not have the listing! In all fairness, my neighbors are renting the home and I do not know the owner….that being said, I was still shocked to see that the home was overpriced by at least $70,000! Why, oh why would the agent take this listing after knowing that even if they received a full price offer, there is not a chance the property would appraise for the sales price?
I come across listings that are well above market value every day. Unfortunately, there are quite a few real estate agents that try to sell overpriced properties even when they know the home is not worth their list price. These agents, in my opinion violate the basic principle of selling, thus damaging their reputation and misleading sellers to believe they will come away with a windfall, when in all reality, they leave the transaction frustrated and less respectful of the real estate market and real estate agents as a whole – why do you think the For Sale by Owner and a la carte real estate industry has gained so much popularity over the past decade? So why do they do it?
The agent may be new and not experienced enough in how to properly price a home. Believe it or not, it is not just a matter of pulling comparable sales and putting the numbers into a calculator.
The agent may have told the seller what they wanted to hear as far as price is concerned – rather than showing how good research and realistic expectations make for a better sales process and will allow the home owner to get the right price for their home with the right amount of time on the market.
The agent may have tried to justify price by using a price per square foot calculation rather than really looking at what the market was demanding. The truth is, price per square foot only works for new construction – and even then, this does not establish a market value, but only a cost analysis of what a buyer must pay to get the finishes they are wanting.
The agent may be looking at the property as a way to find unrepresented clients who are looking to buy and can help them to find a different property. Unfortunately, this is all too common in the industry.
The seller may not have been willing to accept the fact that their home is not worth what they think it is. That is human nature, we always believe that our home is better than “the guy next door” – unfortunately, the agent does not have the experience to know that they should have turned down that type of customer. Although the home may sell in the future, it will most likely not be by that agent due to the frustration that will occur during the sales process by both the seller and the agent.
The Temptation and How to Avoid it as a Seller
As a home seller, please, please, please, do your due diligence with your real estate agent. I have nothing against the new agent trying to gain experience, but your home is most likely the largest investment that you will make in your life. This being said, it is your responsibility to interview agents to handle your prized possession. Look at their body of work, ask for referrals on previous sales and follow up on those referrals.
I give you this advice because, there are people in every industry that will do anything to whatever they can to win – including giving a seller a dream sales number…which can turn into a nightmare experience. As you know, the Real Estate Industry is commission based and there are a lot of “Pinocchio’s” who make poor decisions when tempted by dollars.
My recommendation is to interview three agents and let them each know that you are interviewing other agents. Watch and see the differences in each sales approach. Again, they should each be able to justify why and how they arrived at the number they discuss with you and you should feel comfortable with the way they present your options.
As a seller, you also need to have an open mind to realize that your property is most likely not the superior home in the neighborhood – it may be very nice, but you really do not know all the features that every neighbor has or does not have within the walls of their castle.
Not every Realtor that takes on overpriced listings is a bad person. However, the reality is that there are certain real estate agents that do suffer from a lack of integrity. Being a good Real Estate agent is hard work, but not every agent is willing to put in that kind of work. Some are happy to say anything to get a client, even if the client suffers for it.
What are the Benefits of Taking an Overpriced Listing?
As you can imagine, an overpriced home will rarely sell in a timely manner. The agent knows this, your neighbors know this, so why do some agents place their reputation on the line by taking on a listing that will not sell?
Advertising - The real estate agent does not have to sell the home to benefit from taking on the listing. As soon as the agent accepts the listing, he or she can put up a sign in the yard of the home for sale. On this sign will be the agent’s number, email and website. Maybe even a picture. Depending on where the home is located, this little billboard will be viewed by lots of potential clients. This helps get business elsewhere. It makes the phone ring for the agent. Do they need your home to sell? No!
Open Houses – Bill Gassett, a well-respected real estate analyst, says it perfectly in this quote, “Some sellers expect an open house even though they are one of the biggest wastes of time for the owner. The kind of agent that takes on an overpriced listing will likely encourage an open house, since it allows another opportunity for him or her to meet with potential clients. Even though an open house is one of the least effective avenues for selling a home, an agent who needs clients will push to have them.
The agent knows that no one walking through the door of the home will likely be purchasing it. But they may be interested in buying another home, and the agent will have other listings that he or she can steer the buyer towards. Sellers come to open houses too, so they can get an idea of what homes are going for in their area. The Realtor can possibly pickup these sellers as clients as well. Open houses have and always will be more fruitful for a Realtor and not a home owner. Real buyers schedule appointments with real estate agents!”
Fishing By Price - The reality of real estate today is most people shop for homes online. These buyers however most of the time do not know a home is overpriced until they actually get to the home and view it in person.
The Real Estate Agent can also place an ad in the newspaper or a magazine that leaves out the address of the overpriced listing. Buyers that are ready to buy a home for the price in the paper may call the agent. These buyers are ideal clients – people will to spend money on a home, sometimes a lot of money. The Realtor then only needs to steer these callers towards his or her other listings or even another agents in a similar price range – listings they will actually want to buy
Consequences for the Agent
I need to step back for a second. Don’t get me wrong, even when the agent takes an overpriced listing, they believe that the home will “eventually” sell – once the owner drops the price. They know that they will have to have difficult conversations with the sellers to explain why the home is not getting showings, why there aren’t offers, and ultimately why the home has not sold as they promised it would. Additionally, they realize that they may damage their name in the long run and be known as the agent who always overprices their homes. I have dealt with a few of these agents; the first thing that always goes through my head is, “Ugh, not this guy again” – this is definitely not the thought you want going through the head of anyone, let alone the agent who will be representing a potential buyer of your property.
Consequences for the Seller
I started off my thoughts about the home being sold in my neighborhood. It has now been on the market for two weeks. Just two days ago, a new sign hung at the bottom of the sign, it reads, “Price Reduced”. I checked the price reduction, it was only $10,000 – meaning that it is still overpriced by $60,000. I think of the words “Price Reduction,” as a black mark on a home. The picture that goes through my mind is that something is wrong with the home and that is why it needed a reduction in price. If I am thinking that, then buyers are thinking that. Even worse, they believe that if your home had a reduced price within a few weeks, then there is probably plenty more room to go and you are probably in a hurry to sell, which in turn means they could offer a price well below what you should have listed the home for.
The worst situation that could happen to your home is that it becomes stagnant on the market. The longer it sits, the harder it becomes to sell – don’t let greed dictate your future! Don’t let an agent talk you into overpricing your home, and be realistic in your expectations!
As always, if you are looking to buy or sell your home in Utah County, Salt Lake County, or Heber City, please reach out to me with any questions. Please reach out to me at (801) 885-2558 or by email at brandonrwood19@gmail.com.