In the hottest real estate market in decades there are actively real estate agents right now losing tens of thousands of dollars for sellers. Today we’ll see real world examples of how and what you can do as a seller to make sure it doesn’t happen to you.Between the current lack of housing inventory and incredibly low interest rates, the real estate market in Maryland is on fire. Multiple offer bidding wars are the norm now and it’s a common occurrence for buyers to offer well over the list price to win a property.
This sounds like a can’t miss opportunity for sellers and you’ve likely heard on the news or all over social media that because of this now is the time to sell. And that is absolutely true. But what you don’t hear is that while you’re trying to take advantage of your leverage as a seller, a bad suggested pricing strategy from your agent may costs you thousands and thousands of dollars.
Unfortunately, a lot of real estate agents weren’t around during the last housing bubble and didn’t learn how to properly price a property to maximize consumer interest and final sales price in a market like we currently find ourselves in.
When you interview an agent to potentially list your home for sale, they may tell you the best strategy in this market is to list the house at a low price to generate interest and eventually a ton of offers. This is a very dangerous mistake.
The problem with this strategy is you are creating a psychological barrier for the buyers which prevents them from paying fair market value for the house.
For instance, an agent may expect a home to sell for $500,000 or more but suggests listing it at $450,000 to generate more interest and offers. The audience of potential buyers looks at this $450,000 list price as a starting point, understanding that there will be multiple offers and may be willing to offer over the asking price.
However, because the price is only $450,000, they may only be willing to pay up to $475,000 or $500,000 because they have a psychological anchor to that original list price. In their minds, the list price was what the sellers were looking for and the higher they go over that price, the more they are “overpaying” for the property.
One of the reasons some agents suggest this strategy is that once the property is sold they can brag that they sold the house for a certain amount over the list price and had 20 offers.
However, the proper strategy would be to price the house at what the most recent comparables indicate it may sell for so you are targeting the true audience for the property. This way you are likely to sell at the fair market value or above, which would be higher than the price achieved in the first example. With the original strategy you may list for $450,000 and sell at $500,000 with 20 offers.
But with the proper pricing strategy, if you listed the home for $500,000 you would likely sell for $525,000 with 5 offers. From an agent’s marketing perspective, it sounds much more impressive if they say they sold a property for $50,000 over the list price and generated 20 offers. But as a seller, I would rather receive a fewer offers but net $25,000 more.
This isn’t just a theory. Quite a few Red Cedar Real Estate buyer clients have taken advantage of this pricing strategy and closed on homes netting them instant equity because of listing agent pricing mistakes.
Recently I represented clients who were interested in a home in Catonsville. The property was listed at $375,000. After touring the property we ran a comparative analysis for the buyers so they could have a better understanding of what the home should sell for. Based on that analysis we pegged a fair price for the home at $400-$405k.
We made a list price offer with an escalation up to $405,000 and beat out a half dozen or so other offers at a final sales price of $387,000. The house appraised for $400,000 so the buyers instantly had $13,000 in equity despite having to battle multiple other buyers to win the house.
The reason for this is simple. The other competing buyers were not willing to “overpay” for the house because they didn’t have the same analysis provided and, more importantly, the artificially low price point gave them a psychological barrier to paying significantly more than the list price.
In this example, since my clients were willing to pay $405,000 for the house, the sellers lost $18,000 of their own equity. What’s worse is they likely thought their agent did a great job by selling their house in 2 days with a bunch of offers, never knowing how much money they lost.
In fact, they likely lost more than that since pricing the house at $400,000 to begin with would have likely resulted in more offers significantly over the $400,000 list price.
Understanding the pricing strategy mistake is important, but what’s more important is knowing how to avoid it. When you meet with a listing agent to possibly have them list your home, ask them what their strategy is. If they suggest listing the price low, that’s a major red flag.
More importantly, your agent should be providing you with a detailed breakdown of other similar homes that have recently sold in your neighborhood and provide you with reasoning as to what your home should be selling for based on those sales. If the agent is showing you a list of similar properties that sold for $500,000 and is suggesting listing your home at $450,000, that’s also a red flag.
If you’re exploring the possibility of selling your home and would like to discuss pricing strategy further or just need a second opinion, feel free to reach out and let us know – we love talking about this stuff!