Overpricing how and why it happens

 

Sound Advice. It is always in a Seller's best interest to select the best REALTOR®, not the best price.

A Real Estate Agent has no control over the market, only the marketing and representation for their listings. One should never select an agent based on price alone. Hiring the agent one likes the least, who suggest the highest asking price, is a true recipe for disaster. They will be listing their overpriced property most likely with the least qualified agent.

The agent who "Buys the Listing."
 

An agent anticipates a potential client will be interviewing several real estate agents. Of course the first question they ask is, "what do you believe my property will sell for?" Even though the agents prepare comps and market data, one agent really stands out to the seller because they suggest a listing price far above what other agents had recommended. Naturally the seller desires to get the most money out of the sale, so they ignore the market data and hire this agent. Unfortunately they have just fallen for a common and unethical real estate practice known as "buying a listing". This term in the real estate field is used to describe agents who offer an inflated sales price in order to win the listing contract.

Why would an agent want to "buy your listing"? First, to secure the listing contract. This agent has beat the competition by luring the seller with an unrealistic and dishonest price. They now have a listing contract. The agent fully expects the property will sit on the market, but also knows that in time, the seller will become frustrated with the lack of interest and showings. They agent will then begin requesting a series of price reductions from the seller until hopefully reaching an asking price the market will bear. Continued below...
Owner's Choice.

Sometimes a REALTOR® can be thorough in preparing a Competitive Market Analysis, following all the necessary and proper processes and procedures, and have excellent neighborhood market knowledge. With their information, experience and data, they educate the seller about pricing their property and recommend a competitive asking price.

Unfortunately the seller has unrealistic beliefs in the market value of their property. Maybe they owe more than the property is worth. It's possible they have completed extensive remodeling resulting in an over-improved property. Regardless of the reason, the seller insists on an extraordinary asking price.

With this scenario, as with most overpriced listings, will play out with the property remaining on the market for an extended amount of time. During this time, the property will receive little or no interest. Frustrated,  the seller begins, and continues, to drop the price in small increments
until hopefully reaching an asking price creating interest.  Unfortunately, it may be too late. They property may have already been on the market too long and due to this time on market, agents and buyers both assume there is a major defect with the property.
According to recent statistics, most properties listed at an excessive asking price end up selling for less than their market value.

Learn more about pricing your property to sell here...
Another reason is the agent wishes to attract additional sellers and buyers. With the agent placing their "for sale" sign in the yard, inquiries will begin. Potential sellers will be impressed with the asking price of the property, and anticipate their property could be listed with a similar asking price. With the potential buyers, even though the buyer will find the property to be overpriced, the agent will offer to help them locate other properties meeting their criteria, within their price range.

Unfortunately agents within the community will know the listing has been "bought" and is overpriced, and will typically boycott showing the property, knowing their time is too valuable to waste on showing an overpriced property.

Even worse is the seller will be obligated to remain with the unethical agent until the listing contract has expired, or take their property off the market completely until the contract has expired. With a typical listing agreement being six months or greater, the seller may not be able to move forward with their goals as anticipated.

All sellers should protect themselves. Be sure to read "What's My Pad Worth" to gain an understanding of how an agent should determine a competitive and market appropriate asking price.
Volume is king.

Some agents believe in playing the numbers game. Their theory is the more listings they have, the more listings they will get; knowing property owners are often impressed with the number of listings of an agent. Through this, the agent may score even more listings. With an abundance of listings some will sell, sooner or later. Those that sell, great. Those that don't will either renew based on additional promises, or the owners get smart to the game and seek the services of another REALTOR®.
Shooting from the Hip.

An agent should do extensive research on comparable properties within the same area - similar square footage, construction, and, features & amenities. Utilizing these and other criteria's, a Competitive Market Analysis can be prepared offering a detailed analyses of the similar properties listed, pending and sold within the last six months. Some agents will for go this exercise and shoot from the hip. Knowing of a property listed or sold nearby , they guestimate an asking price without ever comparing properties. For anyone listing their Pad, they want to be sure to receive a Competitive Marketing Analysis from a qualified REALTOR®, before setting an asking price.


The Cat Intimidates the Mouse.


An agent meets a potential seller with facts in hand, and proceeds to view the property. Either during the tour or when they approach the discussion regarding the initial asking price,  the owner  matter-of-factly communicates what they believe their property is worth. Fear sets in for the agent and the facts are set aside knowing  if they share with the seller the  Competitive Marketing Analysis and  their recommended listing price, they will lose the opportunity to list the property.  Hence, an overpriced listing hits the market.