By Gary Hubbell, ALC
Broker/Auctioneer, United Country Colorado Brokers
Every time we take a new listing, we explain to our sellers how our marketing programs are very robust. We talk about how people find properties on the internet; how strong Search Engine Optimization (SEO) will help bring them a buyer; how excellent photography and video will showcase the property; and how our database of buyers will respond to the new listing.
These are wonderful ways to market a property, and highly effective. However, none of it matters if the property is overpriced. In fact, it may actually be detrimental to the overall sale price of the property if it’s marketed very well but still overpriced. Why? Because now EVERYONE knows you have an unrealistically priced property, instead of just a few people.
That being said, many sellers still want to argue with us about the value of their property. We recently met with owners of a country home on a couple acres who thought their property was worth $800,000. “The neighbors next door are going to list their property, and our lot is 50% bigger than theirs, and our home is 800 square feet bigger,” they insisted. “And they’re at $800,000,” they said. As it turns out, the neighbors’ home was actually 800 square feet bigger, the lots were the same size, and the neighbors listed with another United Country office with the same marketing tools as ours—for $750,000. Once they saw a lukewarm response, the neighbors quickly reduced their price to $700,000 and it ultimately sold for $625,000. So what does that make our sellers’ property worth? Certainly less than $700,000. Maybe 650, and darn sure not $800,000.
If we had taken that listing at $800,000, it would have been a disservice to our sellers. The reasons are many:
- An overpriced listing connotes an unrealistic attitude from a seller who is likely to be stubborn, unreasonable, and unwilling to negotiate
- An overpriced listing reflects a lack of professionalism on the part of a real estate agent who is unable to advise or control their client
- An overpriced listing rather quickly becomes stale on the market and invites predatory “low ball” offers
- An overpriced listing quickly becomes stigmatized—“what’s wrong with it, it’s been on the market for ____ days!” says the buyer.
We Don’t Have to Sell! Then Maybe You Won’t
The seller who says, “Well, we don’t have to sell! We can stay right here if we have to,” is actually in a very good position. If there’s no financial stress because the house is paid off or there is no immediate reason to move such as a new job in a different state, that seller is actually in a beautiful position. They can AFFORD to price their home reasonably, sort through the best offers, and move on in a leisurely fashion. Is it ALWAYS about getting the very last dollar for your home? Of course not! What if the new buyer is willing to give you 30 days post-closing to move out? What if they’re willing to take your old cat who is familiar with the home?
Unfortunately, people who have the luxury of staying put often do exactly that—for a very long time, because they’re stuck on an unrealistic listing price. I recall one seller whose mother was in a long-term care facility and he wanted to be close to her in her final years. Obviously she wasn’t that important, because he was stuck on his price for three years, and then she died. There was another seller whose stated goal was to move and watch his grandkids at their school plays and basketball games, but they were almost out of high school before he finally got realistic on what the property was worth. Those are years and opportunities that you can’t get back. Obviously the market speaks.
The Relationship Sours Between Broker and Seller
One of the worst effects of an overpriced listing is the breakdown of the relationship between the broker and the seller. Once the property has been exposed to the market for a certain period of time, the agent or broker needs to know that there is a light at the end of the tunnel. There will be a sale and there will be a commission paid. After numerous showings, advertising expenditures, consultations, and lost opportunity cost, an agent will naturally lose a sense of loyalty to the seller. Despite advice to the contrary, data showing market movement, and other properties coming on to the market and selling, there’s that listing that won’t sell. That engenders a certain hostility in what should be a symbiotic relationship. When a client engages a real estate agent, it goes without saying that the agent provides good advice, market data, buyer feedback, and goes on marketing and showing the property. When that advice is ignored out of sheer stubbornness, it causes a problem for the agent. “Do I dump this listing or do I keep on showing it?” goes the thought process. “Someone is going to sell it, it may as well be me! If I let the listing go, the next agent will get a price reduction and finally sell it. It will make me look like I can’t get the job done. When will that old fool listen to me?” It’s like teaching a pig to sing—all it does is waste your time and annoy the pig.
Your Overpriced Property Still Has Value—to the Listing Agent
Every listing has value, but in ways that you may not consider. Imagine this conversation—a buyer calls and inquires about an overpriced property. She has studied the market and wonders why this one is so much higher than similar properties—maybe she’s missing something? The agent says no, it doesn’t have a special undisclosed attribute such as a flowing trout stream or a guest house. It’s just overpriced, sorry. Will the seller negotiate? No, they’ve turned down several offers that seemed to be in the ballpark. Oh. But I can help you find something else! I have a new listing coming on the market, and the sellers are motivated! Really! Tell me about it! See what’s going on here? The agent is using the overpriced listing to sell other properties. You’re the decoy to get the ducks to come in. So, yes, the overpriced listing does have value, to the listing agent, but not the seller. The question is, do you want your property to act as a shill to attract buyers so agents can pull interested buyers away from your property to sell someone else’s? Because that’s exactly what happens.
Do You Want to Literally Die to Prove Your Point About Your Home’s Value?
It is statistically proven that an overpriced listing will eventually sell with a “days on market” duration three times longer than average, at a price that is 10% or more less than true market value. No matter how stubborn the seller, things eventually change. I recall one stubborn old German who insisted his property was worth a certain amount, and he would not budge on price. I showed it again and again with no offers. This home was at 7,000 feet in elevation and the old fella had COPD. His doctor warned him that he had to get down to a lower elevation or suffer the consequences. He ignored the warning and died of a heart attack. It didn’t take his widow two weeks to lower the price, get a contract on the home, sell it, and move on. Believe it or not, this is actually a fairly common scenario.
Your Overpriced Property is Vulnerable to a Predatory Offer
We find that when a property is overpriced by even 10%, buyers will be reluctant to make an offer. “I don’t want to insult the seller,” they always say. Other buyers are not nearly so polite; they couldn’t care less. Call it what you want—the “low-ball offer”, “slap your face offer”—it’s an offer made to jar the seller into finally giving up and moving on. “Cash, close in two weeks,” the buyer will state. Those offers typically come in at 30-50% below asking price, and it’s a clear indicator that the buyer acknowledges that the property is overpriced and is still willing to play. And sometimes it works! Unanticipated events may occur to force a quick sale, such as a sudden illness, unemployment, or even a new investment opportunity. “I found a great deal on a new airplane,” a seller once told me, “and I wanted the airplane more than the hunting property, so I took the offer,” he explained. “I knew the plane wouldn’t be available for very long at that price.”
Pricing a Property is Not an Art Form—It is a Collaborative Effort
When pricing a property, it’s not my opinion as a broker that matters. It’s not the seller’s opinion, his neighbor’s opinion, the accountant’s opinion, or the hardware guy’s opinion that matters. It’s the buyer’s opinion that matters. When listing a property, we bring statistics to show sales of similar properties over the past six months or so. However, the properties we sell are not cookie-cutter subdivision properties. Our listings are usually very unique, varying with several unique attributes, including acreage, size of the home, quality of improvements, location, proximity to public lands, water rights, and views. We estimate construction costs, value of the acreage, etc., to arrive at an estimate of value, and then we try to find similar comp sales and listings. There is no magic wand, however. Sometimes we miss it, and the market surprises us. We advise our sellers as to our opinion of value and let them choose the listing price. That way when we ask for a price reduction, they can’t say, “Well, we just followed your advice and listed at the price you said it was worth!” Nope. We advise them and they choose, and then we can figure out how the market responds. If we have good feedback, lots of requests for showings, and an offer or two right out of the box, we know we’re in the right place with pricing. If response is tepid and the phone doesn’t ring, it’s price. It’s time for a price reduction. We can work the new buyer leads and do some more showings, and if it still doesn’t bring an offer, then one more price reduction usually does the trick to bring in a winning offer.
Will Lowering My Price Make Me Look Desperate?
This is a funny question. Why would it? To me, lowering your price means recognizing market resistance to your current pricing, recognizing reality, and responding accordingly. It means you’re a willing seller and you’re serious about selling. If you’re a buyer, you’d better get in the game or you’ll lose your opportunity!
Finally, folks, let’s talk reality. If a property is well marketed, well photographed, has a quality video and widespread indexing on multiple national websites, it should sell. If it doesn’t, no marketing is going to produce a buyer for an overpriced listing. Talk to your broker, communicate about your pricing, and make a conscientious decision about what it will take to sell.
Gary Hubbell, ALC, is a Colorado ranch real estate broker who sells ranches, farms, resorts, income properties, wineries and vineyards, hunting land, and country estate. A member of the Realtors Land institute, he is an Accredited Land Consultant. He can be reached at 970-872-3322.