It’s a Numbers Game

numbers

There’s a new dialog taking place in this area between sellers and their agents upon listing homes for sale. It used to be that it was almost impossible to make a mistake with pricing on a listing. With very few exceptions, no matter what price you put on a place somebody agreed to pay it…or multiple folks lined up to pay more than your price. Pricing required some thought, of course, because you wanted to maximize the opportunity for multiple offers and ususally you did that by making it seem like a bit of a value. Now the dialog is typically going like this:

Seller: Where do you think we should price the house?

Agent: I think we should list it at $850,000.

Seller: Well…we would be OK with $850,000, but we were thinking that we should go a little higher just to build in some cushion for the inevitable offer that comes in under the asking price.

Agent: What price were you thinking?

Seller: We were thinking $900,000.

Here’s the problem…sometimes this notion of cushion will actually push the listing into the “overpriced” category. Sometimes the cushion is really insulation from reality. This new thought process is certainly fascinating and to a very great degree, logical. The fear, of course, is that building in too much cushion will cause the listing to be on the market longer, experience at least one price reduction and end up selling for less than it could have if priced agressively from the beginning. Buyers do indeed want to negotiate downward, it’s not necessarily wrong to anticipate that.

Pricing has always been a bit of an artform. Now it sure feels like it’s gone to the next level.

Comments

  1. Roy Kelley says:

    Good information. Thanks for sharing your thoughts. Pricing can be difficult in the current market. Best wishes for continued success.

  2. My thoughts also, many sellers do say we are going to get low offers so lets put the price up so we can come down. I tell them buy petting it up higher no one will look at it this is the time to put it at this price because later it will go for even less that it will now.

  3. Liz Flint says:

    Absolutely right. You make some good points and I wish the seller’s could realize these issues upfront.

  4. Michelle says:

    I am glad I am not a seller in this market…

  5. Sabine says:

    A house in our community was recently sold for lM. It was in fair condition with the typical upgrades i.e new carpet, new interior/exterion paint and new faucets. The rest of the house was from its original look, the 80s. Our home was the smallest among the 4 floor plans of our community. But since we purchased this home, we have added a whole new kitchen, made the family room larger, added a new bedroom, new roof, and new interior/exterior paint and we have also put hardwood flooring on existing home, granite counters on all bathrooms and new showers. All these additions which roughly is around 2 years old put us on a total square footage as the house that was just sold and with the same number of bedrooms and bathrooms. If we put our home in the market now, would you say a competitive price will be the same price as the house that was just sold? We would think our home would be more since our new kitchen is more than three times the size of the kitchen of that house. But how would you price it in such a way that a potential buyer will not compare it with a house that was recently sold that has almost the same total sq footage, number of bedrooms and bathrooms?

  6. Frances Rokicki says:

    Jim, I have had this happen. It worked out differently, each time. Sometimes, the stratedgy of overpricing, to allow for low offers works, sometimes, it doesn’t. It’s a crazy call to make in this market. I encourage my sellers to list it just below the last resale, and let the buyers fight over it. That way, they raise the price, not the seller. In the end, the seller wins. Having all sellers on board with this theory, would be a wonderful step for all of us:)

  7. Sabine says:

    Okay, this theory works well for the agents and buyers. What if an agent suggest a listing price that is low, thinking and hoping buyers would come running and bid the price up. But what if the highest price received is not even close to what the price the seller wants to sell his home for? What then? What strategy should the seller do after that? Depending on the situation of the seller, it is important to look for a realtor who is not in it for a quick sell. Who can do a thorough analysis of the homes sold, what are the comparable homes, what upgrades were done on the sold homes and the home being listed…..its a lot of research, analysis and a lot of work. So, just basing it on a last resale is easy.

  8. Jim Minkey says:

    Sabine:

    Here’s my 2 cents. It would be impossible to come up with a formula that fits your question and answers it on a blog. The kind of homework you would need to give you a value estimate has to come from an on sight inspection by an experienced real estate agent. In your first comment, a fully upgraded, remodeled home certainly will have more value going forward than an original one and a higher price would be reasonable. You say yours is the smallest of 4 floorplans…if it’s 1700 sq ft versus 2500 sq ft for the largest, and your example of the house in original condition was the largest, then maybe your house will be worth a similar dollar with all the upgrades…who knows? Certainly you would market your home to promote and display your points of difference.

    To your second comment…if you price your house low and get no activity….you didn’t really price it low. At least not from the perspective of the buyers in the marketplace. It may be low from your perspective but there are not too many buyers who really care about that.

    Here’s my best advice after 20 years of selling houses: Pricing a home too high means a longer time on the market, which usually translates into the listing growing stale and the home ends up selling for less (usually far less) than it would have if the home is priced right to begin with. I really don’t think I know too many realtors who intentionally underprice a listing just to sell it quickly for their own self interest…although I know that’s a common fear among sellers.

    In your particular case though, there are way, way too many scenarios that could effect your value versus other homes in your area. There’s no cookie cutter answers online. I suggest you interview 3 experienced real estate agents who are familiar with your neighborhood and see what they tell you the value is. Also, avoid Zillow.

  9. Sabine says:

    Thank you for your input and advice. When the time comes, we will definitely interview a few real estate agents.

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