In response to an inquiry, I was recently digging through some market data to put together an opinion on the fair market value of a Seller’s home. In real estate lingo, we call this a Comparative Market Analysis (CMA.) We look at nearby/comparable homes that are actively for sale, that have recently sold, or that may have expired or been cancelled.
The results were disappointing to me – but they weren’t surprising.
A pattern quickly emerged. I’d pull up a comparable listing that was active or recently sold. In each case, I’d then dig a bit further. And, almost to a one, every home had been listed at a much higher price, and then either reduced in price or cancelled and re-listed at a lower price.
What went wrong? I can almost guarantee that, while not in every case, most commonly the answer stems from an unprofessional Realtor practice known as, “buying the listing.” I wish I could say it wasn’t happening, but it is. A lot.
What am I referring to? I’m talking about a scenario where a Realtor knowingly lists a property at a price that isn’t supported by market data, in order to “win” the listing.
It’s logical for any Seller to want the most for their house. But, when going to market, Sellers and Realtors need to work with historical data, current market conditions, and a healthy dose of common sense.
I’ve come up against this more this year than any other year I can recall. A while back, I met with a Seller who had overspent on renovations in his home. We went through the house and I told him I’d get back to him with my thoughts on value.
“Aren’t you going to ask me what I think it’s worth?” he asked me before I left. I told him that I preferred not to know, because it could prejudice the outcome. Obviously, I am usually eager to “win” the business, but I don’t want to recommend a listing price that I can’t justify. I then cautioned him about working with agents who seem more concerned with what he wants it to sell for, vs. what they think it’s worth.
In the end, he went with a Realtor whose price was $20,000 higher than what I suggested – and who already had another overpriced listing just down the street – one that had been on market for more than 125 days. Looking on the MLS today… both are still up for sale several weeks since he listed.
For the first time that I can recall, I have, on a few occasions this year, told Sellers that I could not take on their business if I had to list at the price they had set in their minds.
In one case, the price difference between what I felt was fair market value and what this Seller “needed” was $150,000. I told him I wish he was correct, but that he was not – and that it would be professionally embarrassing for me to list the home at such a outrageously-high amount. “Another agent told me I was bang on,” he said. I politely encouraged him to be very careful of promises that sound too good to be true, and suggested he press that agent to prove where his number came from. I knew where it came from: the Seller’s incorrect notions about the value of his home.
Well, he did hire that agent, and indeed the home was listed at a price of $150,000 beyond fair market value. After 15 days, the listing was cancelled. The home was re-listed, by the same agent, the next day for $52,000 less. It still sat for a number of months before it was further reduced by $10,000. Again – nothing. It cancelled and re-listed again for “only” $55,000 more than I had suggested but once again it did not sell. Finally, it cancelled and re-listed for the price that I had suggested – 145+ days earlier – and it sold in a week. Here’s the best part: his Realtor double-ended the deal. Talk about rewarding poor performance!
It’s fair to note that there are times when listing on the high end can work… sort of. Sometimes, if you dig in and stay on market long enough, someone eventually does pay your price. The catch is that, during all of those extra months on market, you’re also paying mortgage, taxes, insurance, utilities, and so forth. I’ve seen people rationalize a higher price with months and months on market and known that, in the final analysis, their expenses clearly outweighed the difference on the higher price they earned.
To avoid falling into the trap of hiring a Realtor who is more concerned with getting a sign in the yard than actually selling your home, this is my advice to Sellers:
First, be realistic. Take pride of ownership aside for a moment and look at your home with the cold, discerning eyes of a Buyer. Go to some open houses. Act like a Buyer for a few weeks before you list. Doing so will show you just how picky everyone naturally gets when they start house-hunting.
Second, interview agents but, if the predominating question from a potential Listing Agent is, “what do you think it’s worth?” Run. Just… run. Because, here’s the thing. Their job is not to listen to your advice on fair market value; their job is to educate and inform you on fair market value – and to justify how they got to that price. If the price sounds too high, ask for the examples that the Realtor used to come up with his or her price. Make them work for your business.
Lastly, remember that your business is valuable. I wasn’t surprised to come across all of these price reductions and re-lists when I did a recent CMA. I know the kind of Realtors who do this and some, by the way, do a huge volume of business using this strategy. My only surprise? They never got fired. The re-lists showed that Sellers just stuck with the same Realtor. Prices were reduced, new/updated photos were not taken. In most cases, even the marketing notes were identical.
In Ontario, listing representation agreements can be cancelled. If your agent has knowingly overpriced your home and isn’t taking the steps needed to sell it: let them go. There are hundreds of agents in Guelph alone, and many of them will shoot you straight and give you proper advice.