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Nervous, Home Buyer in 02215

Pricing strategy...

Asked by Nervous, 02215 Mon Jun 30, 2008

Lets say I have a nice house in good condition that I want to sell. Assume that I have done a top-notch current market value analysis and that this analysis has shown that I could realistically sell my house for $500k. Lets also assume that $500k is a number that I would be very happy with as the seller. My question is, wouldn't the best approach be to then list my house for $650k and say that I am a very motivated seller? This would allow me to wait a week or so and then drop my price to $600k and then wait for that "low-ball" offer at 500k and snap it up. Everyone would win. I would be getting what I want for the house and the buyer would be getting what they think is a $650k house for the steal of the century at only $500k. Since many buyers seem more concerned with getting a deal than getting a value, I think this could really work. Thoughts?

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Jeanne, thanks for your feedback. However, you said "we are finding the homes are generally selling for 1-5% of their list price - when that asking price is at the home's "strike price"" ....isnt that just as good as saying "the house is priced right when the house is priced right" or even less usefully " the price a house will sell for is the price it sells for"? I would think that being able to say that "we are seeing houses that are overpriced by $100k are selling for a $100k less than asking" would be the saying applicable in the scenario I'm suggesting and equally as valid as "a house sells for list when list is what it sells for".
1 vote Thank Flag Link Mon Jun 30, 2008
Hi Nervous, Jeannie Feenick here from New Jersey. I have heard some talk of this type of strategy but my recommendation would be otherwise. Instead, I suggest that you list your home with a very good agent, and price it at the low end of the range suggested, if that is $500,000, then that is your number. The excitement for your home is greatest when you first list it. Remembering that well over 80% of buyers are routinely searching online, they will be drawn to your newly listed home and given their knowledge will recognize it as a good deal or not. My experience is that overpriced home are overlooked by a seriuos buyers and their agents. While there is loads of low balling going on, the fact remains that properly priced homes are selling.

Here in our market (Somerset County, New Jersey) we are finding the homes are generally selling for 1-5% of their list price - when that asking price is at the home's "strike price" - be it right out of the gate or after 3-4 price reductions. Case in point, I just listed a great house in Bridgewater, NJ - the sellers followed by recommendation on pricing and within a week we had an offer very close to list - list price about $690K and we are under contract at $685K!

You can learn more about my approach to selling homes by visiting my website http://www.feenick.com and clicking on "The Feenick Advantage".

Price it wisely and maximize your exposure to potential buyers and you should be in good shape.

Good luck!

Best,
Jeannie Feenick
Weichert Realtors
Search and connect at http://www.feenick.com
Web Reference: http://www.feenick.com
1 vote Thank Flag Link Mon Jun 30, 2008
Don your example reminds me of a client I had who wanted to "raise the price" considerably, because the people who came didn't seem able to afford the house. They wanted to attract a "better class" of buyers. They seemed to think there were richer stupider buyers out there. The house did sell, thankfully, and they got out at the peak. I'm sure they still think they "gave it away" and should have asked more. :)
0 votes Thank Flag Link Mon Jun 30, 2008
Nervous: Let's consider your scenario.

You list a house that should sell for around $500,000 for $650,000. As Keith notes, buyers shop in price ranges. So the people looking at houses in the, say, $625,000-$675,000 price range see yours. And they compare yours to the others in that price range. Your property clearly isn't as good of a value. Their agents tell them that your house appears to be overpriced. For what you're asking, someone can buy substantially more house. They pass yours by.

People looking for houses in the $500,000 range might be looking at houses from $475,000-$525,000. They won't even know that yours exists. And if, somehow, they do notice yours, they'll see that it's priced $150,000 above what they can afford...and $150,000 more than comparable houses are selling for.

You ask about marketing your home as a "motivated seller." In today's market, if I saw a house worth $500,000 listed at $650,000 by a "motivated seller" that would tell me just one thing: That the seller bought at the top of the bubble two years ago and got 100% financing, probably with an ARM. They're motivated because the ARM is adjusting and they can't afford the house. And the house is overpriced because they can't afford to cut the price to less than they owe. I don't know what the market's like where you are, but I see that here (Northern Virginia) a lot. Buyers don't even touch those properties. They wait until they're offered as a short sale. Or, better yet, as REOs.

OK, so you drop your price from $650,000 to $600,000. That's not a huge price drop. Moderate, but not huge. And it's still be $100,000 overpriced. It would still be out of the range that people looking to buy a $500,000 house would be considering. And my additional reaction would be: "Well they must think that that price cut makes them competitive. So now if I make an offer substantially lower they'll scream and yell that they've already cut their price by $50,000."

You wouldn't even be able to attract real estate investors. (Sometimes called "bottom feeders" here, though I strongly disagree with the description.) The way they operate is: They determine ARV (after repair value of the property). They then reduce that number, using a multiplier of 0.65 to 0.7. Then they subtract any needed repairs. So a real estate investor would instantly go to the real value of $500,000, drop that down to about $325,000, then subtract any needed repairs. All houses need something. So your offer from investors would be in the range of $300,000.

Having said all that, I do agree with you that some buyers seem more concerned with "getting a deal" than "getting a value." You see those questions here on Trulia all the time. But that's still a minority of the buyers (I hope!).

So: Price it competitively, at the lower end of the comps. Make sure it looks good. Make sure your agent markets it aggressively. That's your best formula for selling your home quickly for the most money.

Hope that helps.
0 votes Thank Flag Link Mon Jun 30, 2008
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
Hi Nervous, let me put it another way - I think the buying public is a bit smarter than you think. You can try your aproach, it may work. You may find that buyer who lacks the market knowledge to know that your home priced at $600K is really a home that is worth $500K but I suspect not. It is far more likely, that buyers and their agents will sit on the sidelines and wait for you or your agent to make pricing corrections and then - f they are still around, you may hear from them.

Good luck.

Best,
Jeannie Feenick
Search and connect at http://www.feenick.com
Web Reference: http://www.feenick.com
0 votes Thank Flag Link Mon Jun 30, 2008
Dear Nervous.
You certainly have a lot of concerns. I looked at your profile and just want to say that I hope the information you are gathering is helpful.

Here is some feedback on your plan:
The buyer that first sees the home they purchase sees it with a Realtor 90% of the time (based on a 2007 CAR Survey). Why do buyers chose to work with Realtors? Because we work for "free" from the buyer's perspective. Why is that important to you? Because that means that for the most buyers they trust their Realtors to do the looking for them.

How many homes have you bought? Right now I have five buyers under contract. Each one is a separate case: budget, timing, wants and needs. I don't spend my time looking for listings that do not fit my buyer's criteria, Sure, I track the listings, but frankly I don't have time to absorb everything. Each one of my buyers has a price range, so I have shopping carts set up in the MLS for their profiles, when a property comes along, if it fits the profile, I get an email. Then I check it out, if it makes sense, then I review it in detail.

So there are a couple of lessons here:
1. Buyers usually use a Realtor, so you need to get Realtors' attention.Realtors know price, so overpricing will simply prevent Realtors and their buyers from being aware of your listing.
2. Buyers also shop in price ranges. I know home values, so when we agree on a price range, say a three bedroom, two bath, 1300 s/fm I won't look at anything over $625K. Taking your plan, you don't need to worry about buyers lowballing because if I had a buyer that wanted to bid $100K low I would discourage him. I sat down last week with a seller and his REaltor for a property over $100K., and he said to me "I don't need to sell" I felt sorry for his Realtor.
3. The good deals always go first. In my MLS, properties that sell in under 30 days sell closest to asking price. The rule of thumb is that you need to list it at the sales price. As a home sits on the market, it loses value. In our market we are seeing an average decline of 1.4% per month in sales price per square foot. As for your market, find out what you market it doing.
4. Are you selling without professional representation? I urge you to at least interview three REaltors and ask for an estimate of seller's net proceeds. Then you do the math. I think you'll be surpised ,
0 votes Thank Flag Link Mon Jun 30, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
Contact
I have found that homes listed at 150,000 over what they are worth do not get any attention from buyers or agents. Buyers know what the value of homes are, for the most part. I would price it closer to what what you could sell for, and just counter any lowballs with full price, or a reasonable cut and leave at that. Your agent will explain to the selling agent that it is priced close to it's value and that is all you will counter at. Your thinking is prevalant among sellers, but as a buyer wouldn't you do research and think if you got a 650,000 house for 500,000 that the market value was 500,000. Buyers are much more educated today. They know what value is. IMO, based on low ball offers my buyers have put in on homes that are overpriced is that you are not a motivated seller and it would be pointless to bring a 500,000 buyer there in the hopes you would accept an offer. Most people that are priced that was "have to get" "need" or "want" and aren't swayed.
0 votes Thank Flag Link Mon Jun 30, 2008
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