Why is it that your typical buyer will always be locked in on the list price. They certainly don’t want to pay more than that, after all, it’s still a buyer’s market right? But the list price has nothing to do with what it is worth. Take the house I listed about a week ago, 1464 S Benton St in Lakewood, CO. It’s not lender owned or a short sale, just a great deal.
1464 S Benton St - FlatGrass Realty
The property is listed at $119,900. A price designed to attract attention from investors because it has a certain relationship to what it could be worth.
We have had multiple offers at, above and below the list price from investors willing to pay cash. Why? Because investors work from what it could be worth to them rather than the list price. Most of the offers (not all) we received from traditional buyers tended to net a value under the list price. If the traditional buyer did their homework, they would know that the home is worth much more than the list price. The list price was just a tool to attract attention or to get a cash buyer involved. The same home down the block sold earlier this year for around $170,000 and that wasn’t even a full remodel. This home could fetch $175,00-$180,000 with a good remodel.
This home’s value is being held down by a handful of local foreclosures that though comparable on paper, sold in days to investors. Some of which have already been flipped. I’m guessing most agents didn’t take the time to look at what it could be worth, the ‘adjusted retail value’ of the property.
This is just one example, if you want to see lot’s of examples, take a look at the HUD bid statistics that come out each week. You’ll be able to see all the bids. You’ll notice that the vast majority of buyers make a ’shot in the dark’ approach to their bid rather than considering the actual value of the home. That’s frustrating for me to watch. Whereas I’m working to attract an investor offer, HUD prioritizes owner occupants over investors. This can be a great opportunity for the average buyer to put themselves into a home with a great equity position. If only they (or their agent) would do the math.
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I am a Sacramento area professional realtor and have run into similar situations. Even with investors. One recently contact me asking me to look for fix and flip homes. I found him many that had great potential or a return on his investment. However, even though the homes I recommended were scooped up one after another, he failed to make a move on a single one. Our local inventory is down to approximately 3 months and many houses are now receiving multiple offers. Careful analysis would have told the investor to move forward. Instead he gave into his fears.
Wes, that can be frustrating. I think there are a lot of people that think they’re investors. Truth is, they may have just been lucky in the past. Now they’re greedy. They spend most of their time looking for that ‘home run’ deal. Real investors treat it like a business. They understand that some deals will be the ‘bread and butter’ deals that keep them and their people in business. It’s much better to be busy making something than bored making making nothing.
Although the listing price of a home is a great starting place — in many cases the actual value of a home is exactly what people are willing to pay for it. There are so many variables involved that it can be difficult to determine what that price is. Guess that’s why we depend on CMAs to help us find a place to land. Smart investors know the tricks. Others are likely to miss out on a nation-wide clearance sale!
Luck + Greed = End of Luck, plain and simple.
List prices matter to the people who are not required to sell their homes, so realtors should try to uphold the values of the lenders they represent. Just because the lender may be willing to give the dang thing away doesn’t mean that is what the “right” thing to do is.
Rudy, not sure where you were going with that but I think you’re missing the point. The whole point is to maximize the value of a property. A listing agent can exploit the list price to anchor a value a little higher than what the market might support or to motivate buyers to move quickly. The best list price is the one that places your property arguably, in the top 2 or 3 in the neighborhood. Otherwise, you aren’t selling to today’s market but to some future market you can’t predict.
Many agents tend to think of the list price as a representation of value but it’s simply a starting point to a negotiation. The actual list price rarely represents an accurate value as your comment about ‘upholding’ a value illustrates. A savvy buyer’s agent should learn to ignore the list price and avoid the potential of being anchored to it as a starting point for an offer.
To be clear, I’m not talking about giving property away. The “right thing” to do is whatever your client wants you to. What I’m talking about in my post is maximizing value while meeting a time frame expectancy. Now if you’re selling lender properties and have been directed to hold your listing prices up while selling other properties, that’s fine too. But most agents should try to avoid this situation. Asset managers are keeping records of performance and tend to cycle fresh brokers in when previous brokers records start to look poor.
By all means sell the property for as much as you can but I would avoid trying to ‘uphold’ prices. In the end, you’ll have an unsold property, a pissed off client, a poor sales record and possibly a reputation that says your listings don’t sell.
Price the property appropriate to your current market, otherwise you’re just wasting everyone’s time.
The listing price of a home is just that the Asking price. In todays market prospective buyers should not be so focused on the list price of real estate