When we sit down together at a listing appointment, I am not going to tell you what you want to hear. It is unlikely I will quote you the highest suggested list price for your home. But it is possible I will provide you with the most accurate estimate of the price your home will actually sell for.
Estimating the value of your home is not rocket science; but, it is somewhat of a science.
There is a basic methodology agents use in estimating your home’s market value… and there are three essential factors that will impact the sale price of your home: location, condition and list price.
Different agents may have differing opinions of how the location of your home will impact its value; but, we will all take these characteristics into consideration when presenting you with an estimated value.
Or, will we?
The fact is, not all real estate agents are created equal. When choosing an agent, choose carefully. If you ask an agent for an estimated value for your property and the agent replies, “What do YOU think it’s worth?”, I suggest ending the interview immediately. Seriously, right away.
In my opinion, that real estate agent is setting you up to fail. They are going to tell you what you want to hear. They are chasing your listing. They want your signature on a contract. Whether the house will ultimately sell for close to your suggested price is irrelevant…
And this is totally unfair to you.
Respectfully, wherever you are selling real estate, the market value of your home has nothing to do with your opinion of it’s value, or what you may have paid for it, or what you still owe on it, or how much profit you would like to make when you sell it. Value has to do with your property’s location and current real estate market conditions: inventory, comparable sales, etc. So you want to choose a real estate professional who, among other things, can provide you with a detailed explanation of how they arrived at the valuation for your home.
Not too long ago, I spoke with a real estate agent at a showing. It was our third transaction together, but it was the first time I had met him. He and I have diametrically opposite approaches to our responsibilities as a REALTOR. I typically attend all showings, inspections, appraisals and closings with (or on behalf of) my clients. He said he rarely goes to any of these events… he said “it is too much work”. Yup, that is actually what he said. He told me he gets the listing, places a lock box on the door, lets the Buyer’s Broker earn their money and he collects his commission check.
He has never attended the closing on any of our transactions.
He said his primary responsibility is to get the listings. He gives suggested list prices that are higher than where he expects the homes will sell. He told me it’s “a numbers game” – the more listings he gets, the more homes he sells. So, essentially, he tells people what they want to hear… he said most people expect they will have to lower their asking price at least once or twice.
Frankly, I was shocked, especially since this guy appears to be pretty successful.
The problem is: most people don’t understand that price reductions tend to cost them money.
According to the National Association of Realtors, approximately 90% of all home buyers start their home search on-line. Initially, they look for properties that are located in the town(s) they have targeted. During their initial review, Buyers tend to make judgments as to whether homes are in a desirable location, are in good condition, and are priced well.
When Buyers judge a property is over-priced, they move on. Often, they remember which properties were over-priced, and don’t go back to them (especially in the market we have now, when available inventory is very low: it’s easy to remember the houses that are over-priced when there aren’t a lot of houses on the market). On a continuing basis, Buyers typically filter their search for homes that are ‘newly listed’ – that is, they want to look at properties that have been listed within the last 15-30 days. By the time the Seller reduces their initial list price and decides to make a 30-day price adjustment on theirr home, it has already fallen out of the search parameters for many (most?) Buyers.
So a second price adjustment becomes necessary to get the Buyer’s attention… and sometimes a third or even a fourth reduction is needed to sell the home. Or the Seller(s) may need to pull the house off the market all together to “re-set” the market for their property.
This cycle is called, “chasing the market”.
The longer a property languishes on the market, the deeper the discount that is needed to secure an offer (NOTE: the last estimate I saw was provided by a firm that studied the issue for either NAR or Realtor.com. It said that Sellers who have to endure one or more price reductions tend to get 11% less than the original list price. If we assume the original list price was 5% higher than it should have been, chasing the market caused them to receive 6% less than they might have otherwise received)
Conversely, when a home is listed at an appropriate price, it creates a ripple in the real estate vortex – especially in a Seller’s market. Realtors create a “buzz” by posting a “COMING SOON” listing. Buyers anticipate the forthcoming open house, then flock to it. Assuming the location is desirable and the condition is suitable, Buyers start bidding against each other – and themselves: “We have to get this house. It’s in a really nice location and in great condition. Someone else is going to offer 5% more than list price to try to get the house under agreement… so we need to offer 6% more!”
It is generally accepted that the first 15 days of your listing is the most critical time period. Having a strong list price from the outset is crucial to selling your home quickly and at an optimal price (NOTE: The same study referenced above found that houses sold within the first 15 days of listing sold for 2% more than the original list price, on average, making the difference between the two approaches something on the vicinity of 8%).
The real estate agent referenced above is obviously an outlier. He does not reflect the professionalism practiced by the overwhelming majority of real estate agents in NH, and around the country. But information is power… and it helps to know that there are people out there who think this way. Caveat emptor! Interview your prospective real estate broker. Ask questions. Have them show you their work product. Then once you have selected the right broker, ask their advice… and listen to it. Avoid the temptation to ask too much for your home: choose an intelligent list price.
Then let the bidding begin!