You are planning to sell your home and interviewing a few potential real estate agents to help you with the process. Each agent describes their services and offers up a pricing recommendation based on their knowledge of the local market. Often agents with the highest recommended prices ooze with confidence and say “I can get you $50k more than the other guy.” Of course sellers want to maximize the amount that they receive for their home, so time and time again, we see sellers making their selection based on the agent who promises the highest price. Choosing your agent based solely on the fact that they recommended the highest list price is one of the biggest mistakes that a home seller can make. Let’s look at why.
- Inflate the price to get the listing – This is one of the oldest tricks employed by real estate agents to get your business. Listing contracts are lengthy and exclusive to the listing agent. By luring you in with false hopes of a higher price, they know that once they have the listing, they have a few months to work on you to whittle down the price until the point that it sells. When competing with other agents for your listing, there are plenty of agents out there who will outright lie about the market value of your home to get the deal.
- Ignoring negative features of the house – Just because your neighbor’s seemingly identical house sold for a certain amount does not automatically mean you will receive the same. Maybe you are next to a busy street, have views of neighboring industrial activity or maybe your house hasn’t been maintained like your neighbor’s home. Sellers often ignore such factors in hopes of getting a higher price, or maybe some negative factors simply don’t bother them after years of living in a house. The agent who ignores such negative factors when pricing a home is doing the seller a huge disservice. Even if these negative factors do not bother you as the seller, they will impact the amount that buyers are willing to pay for your home.
- Real estate agents cannot guarantee a price – Real estate agents are not able to tell you how much your home will sell for. That is a sales pitch perpetrated by aggressive agents. Agents who start the sentence with “I can get you $XXX…” should be viewed with skepticism. An agent can only provide you an estimate of what they think the house will sell for based on recent sales and current supply and demand in your neighborhood.
- The market determines value, not your agent – The actual market value of your home is determined by what a buyer is willing to pay for it. Supply and demand changes constantly and your home needs to be priced to entice buyers to choose your house over your competition. If there are fewer buyers in the market or higher than normal inventories, your price needs to be more enticing to attract a buyer. Even the best listing agent cannot manufacture buyer demand that isn’t there, no matter what they promise upfront.
- Free advertising for the agent – You may find this hard to believe, but it may not matter to your agent if your overpriced listing doesn’t sell. Having a sign in your yard, your listing on their website, and hosting open houses can all be ways that the agent will attract new clients.
- Shorter market times produce the best financial results – Sellers who took the bait of a higher suggested price often grind away on the market for months at a time with repeated price drops. When the home finally sells, it ends up at a more realistic price that was originally suggested by the more conservative agents. Had you taken their advice initially, the home would have sold much quicker for the same net result.
- The comps don’t lie – Does the data really support the higher list price that an agent is suggesting? Are the recent sales truly similar in age, size, configuration and location to yours? Don’t be duped by a set of comparable properties that are listed at higher prices unless you have evidence that properties are actually selling in your neighborhood at those price points. Looking only at unsold listings can be misleading, as there are certainly a fair share of overpriced properties on the market. List prices do not necessarily equal market value.
- There is both art and science to determining home prices – There is a wealth of information and market data available online these days, and a rigorous analysis of that data will help you to arrive at a realistic price for your home. However, an agent who offers data analysis without looking at a range of properties in person is being lazy. Every piece of real estate is unique, and a proper pricing analysis does involve in-person analysis of the home, competing homes and the surrounding neighborhood.
- A reputable agent will turn down an overpriced listing – The list price for a home is ultimately a seller’s decision. However, an ethical agent will turn away a listing that is clearly not going to sell at the proposed price. It can be a waste of effort for the agent, and it does a disservice to the seller with long market times and sub-optimal financial results.
- The second agent will save the day – The best agent to be in this scenario is the second agent that comes on board after the first agent’s listing expires. The first agent promised a sky-high price, but after 6 months on the market and numerous price drops, sellers often become frustrated and will switch agents. As the second agent, the home is likely queued up at a much more reasonable price, and with a fresh listing and a bit more marketing, the house finally sells. The replacement agent looks like a hero to the seller, but in hindsight, the seller could have achieved the same result months earlier by not falling for the promise of an overinflated price.
As a brokerage, we end up losing multiple listings every month because we are “outbid” by agents who claim to be able to get a higher price than us. Our philosophy is to provide an honest and ethical opinion of the price range that the property may sell for. It does neither us nor a seller any good to overpromise on a price that clearly won’t work. As I’m writing this article we are about to lose a listing to another agent from a very well-known brokerage who claims to be able to “get the sellers $50k more than us.” It drives me nuts to lose business to this sort of sales pitch, but ultimately it is probably best for us to let the business go to the other agent. No agent is perfect on pricing recommendations. There is more than one occasion when I wish we had suggested a lower starting price, but I think an honest and ethical approach to the pricing process is what the best agents provide.