"Your competition told me that she can get a million dollars over the asking price," the prospective Seller challenged us. "What do you say to that?"
"I say that we can get you two. In fact," I glibly responded, "we can probably get you three million more, but we'll have to start the list price at $50,000."
"How's that work for you?" (No? I didn't think so.)
As homeowners, it sounds great to hear about jaw-dropping results in your neighborhood, doesn't it? And when it come to Bay Area real estate, there ARE some WHOPPING sales that have, quite frankly, taken our breaths away. But when a million dollars over the list price is no longer the exception, but the norm, there's something off-kilter about how homes in the Bay Area are priced, and the California Association of Realtors should probably be taking a long hard look at this, arguably, misleading practice.
That being said, when Sarah and I have priced properties "transparently," (aka: at a price the Sellers are willing to accept), more often than not, the offers have come up short, and that's a tougher conversation to have with expectant homeowners. (MUCH tougher!)
In an Agent's defense, we live in a free-market economy, which means it's nearly impossible to underprice a home, as we discovered on our sweet little listing at 175 Avenida Drive in Berkeley this week. We deliberately set the price low because this home presented some real challenges, including a high-fire zone, a nontraditional floor plan, a lack of curb appeal, and a long-term renter who wasn't in the running for "tenant of the year." We hoped that by setting a "price to entice," we'd lure more potential Buyers all the way up the hill - and we certainly did!!!
Remember, Realtors don't set the value of a home; they create a marketing strategy designed to bring you the highest and best price.
Of course, we had no idea when we first set eyes on this neglected and abused rental property that it would transform so amazingly well. With Jill overseeing most of the improvements, we painted the interior of the house and the exterior trim, landscaped the front yard, added a mantel to the fireplace, refinished the floors, changed out the lighting, installed new carpeting and reimagined the rooms through artful staging. In short, that ho-hum house became a va-va-voom experience, and the market responded in kind.
Add to our efforts, the fear of rising interest rates, crystal-clear weather, unprecedented demand, a distinct lack of inventory, AND great timing, and you have the perfect storm . . . . The property attracted hundreds of Buyers during its ten day showing period, had requests for more than 160 disclosure packages, and received 16 offers on Tuesday. In other words, it was a blowout by anybody's standards, and proved to be our most popular house to date,
Who'd a thunk? Not me. (In hindsight, we underestimated the demand.)
Lest you think such sales are all smooth sailing; they're not. "Strategic pricing" can present some downsides as well.
The first is that an artificially low price misleads and disappoints the consumer. (Even savvy Buyers have a learning curve to master.)
The second is that a fair share of Agents (especially out-of-area Agents) struggle with understanding the market value and how to adequately support the prices when each successive sale seems to set a new high bar. (Admittedly, it's tough.)
And the third is that the lender and the appraiser have a difficult time bridging the gap between the list price and the sales price, which means the appraisal may fall short, creating a discrepancy between what the bank will lend and what the Buyer has offered. Without an "appraisal contingency" (and those have primarily gone the way of the Dodo), Buyers can find themselves scrambling to come up with the "delta."
All this is my way of saying that pricing isn't an exact science by any means and that each house presents a unique challenge when it comes to getting it right. Too low, and you're inundated with offers that stand no chance (but take up a lot of time); too high, and the Buyers quickly go into hiding.
Moreover, price a house too low and you risk losing the Sellers' confidence altogether, followed quickly by the loss of the listing. (We're not in the business of "buying" your listing by setting up false hopes.) Price too high, and you'll invariably have to reduce the listing until you settle below where you would have landed if priced appropriately.
Still, I'd like to believe that most Agents are placing the Sellers' interests ahead of theirs, and ARE pricing within reasonable margins. However, demand is currently so strong that's it's hard to know exactly what the market will bear. And circling back to where I started, there are those out there who have built their careers pricing WELL beneath the market value, as it makes for a terrific talking point - as in: "I can get you a million more!"
At the end of the day, where a property trades is ultimately up to the market - not the Agent - no matter what anybody says. However, I'll concede that there are ways to bring in more interest and to carry the result higher than expected. That's where skill, integrity, and strong negotiating styles come in, and why working with an experienced, LOCAL Agent is more critical than ever.
Because who you work with does, in fact, matter. I just wouldn't base it on a promise as silly as smoke and mirrors.
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Julie Gardner, has been writing The Perspective for 18 years and has published more than 725 humorous but always informative, essays on life and real estate.