Over-Pricing Will Sink a Listing Dead in the Water

Posted by Monte Davis on Thursday, June 16th, 2011 at 5:24pm

This week I'd like to talk shop a bit. As investors we're going to be in the position to both buy and sell. Given that, we need to understand some of the mechanics of the process from both sides of the fence, client and real estate professional.

Without telling tales out of school, let me share a story. An agent representing a buyer negotiated a contract on a property where the owner had been through several listing agents over the past year.  Red flag number one.  They submitted an offer $15K less than the asking price, which was at the high end of the realistic price of the property.  After much negotiation, an agreement was met and the property was under contract.

The appraisal came back exactly $15K less than the asking price. Red flag number two. Now things got sticky. The seller absolutely would not budge, believing his property was worth significantly more than the appraised value. He had plenty of equity and no pressing need to sell. He also had an expectation about the value of his property that was not in line with its true value.

Realistic pricing is a huge problem and a chronic headache for listing agents. We, as investors, absolutely must have a clear understanding of market comps and a realistic expectation of the true value -- which is what the market will bear, period.

Working through a our expectations can be like hitting a brick wall even though it all appears to be pure common sense. When 10 properties that are reasonably similar to our own have sold in the same area for $250,000, it doesn't even begin to track that we can slap a $350,000 price on the listing and expect to get it.

Part of the problem is that too many of us owners have not protested our taxes. This should be done annually. If the taxes are not in line with the appraised value, the we should be on the phone or on the other side of the counter at the tax office doing something about it. There was a run-up in property values in the mid-2000s, but those prices have settled down. The taxes haven't. So, based purely on what we're paying in taxes, we owners get an inflated idea of the listing's value.

Another issue is when listing agents do what I call "buy listings," going along with whatever price a seller suggests and ignoring our professional responsibility to offer a true and honest assessment. That does nothing but eat up time on the market and over that time, the listing is irreparably harmed. As a general rule, if we don't get an offer in the first 14-30 days the price is too high.

Trying to overcome expectations is always difficult. The hardest fact of all and the one that is generally learned the hard way is that over-priced properties will sit on the market getting more and more stale by the day. No one will pay attention to the listing, and it certainly won't get shown. Once a listing is allowed to go dead in the water, it's a waste of every body's time and energy. 

 

Of course, we don't want to under price our property either.  Bottom line is, that numbers don't lie and facts are facts. 

You are welcome to send me an email with questions.  As always, please feel free to comment.

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