When to overprice a real estate listing
The Wheel Estate Cam: Episode 21
By Frank Borges LLosa, Friday, April 23, 2010.
Episode 21: All too often, real estate agents talk about how sellers are unrealistic in their desire to list their home for sale at an inflated price.
In this segment of The Wheel Estate Cam, broker Frank LLosa makes a case for strategic overpricing.
He shares an example of a past condo listing that he represented, which he felt was priced too high for the market. Another unit in the same building was later listed for sale with an even higher price, and quickly he received an offer for the unit he represented because it was about $40,000-$50,000 cheaper than the comparable unit.
"There was a buyer who got super-excited about my unit, thinking that my unit was like the bargain of the century even though mine was not a bargain and the other one was even less of a (bargain)," Llosa says.
In another instance, when representing a townhouse in Reston, Va., LLosa says the seller agreed to overprice by about $15,000 to $20,000, which led to bids on a comparable home that was priced lower.
So overpricing in that instance also served to stimulate activity -- after the cheaper unit sold, the townhouse LLosa represented soon after sold with a price reduction that was comparable to the other home's price ... but still was higher than what the typical market price would have been.
"Have you ever overpriced a listing? Is that unethical? Is that crazy? Should an agent always price at the price that (a property) should be, or do you actually take into consideration market dynamics," he says.
"We know it's not the stock market, but ... there might be some strategy to pricing which would include overpricing."
Comment below to share your thoughts.
Watch past episodes of the Wheel Estate Cam.
Frank Borges LLosa is the broker, founder and owner of FranklyRealty.com, a real estate brokerage in Falls Church, Va. He is the creator of the Trust Me I'm a Realtor blog and multiple listing service wiki site FranklyMLS.com. You can follow him on Twitter: @franklyrealty.
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Submitted by Amir Shahkarami on April 23, 2010 - 2:07pm.
This is a very interesting subject. But before I give you my take on it, I need to discuss your style.
You should immediately stop video recording while you are driving. You put yourself and others at risk. In many areas such as California this behavior would be considered illegal. It is a terrible practice to not pay 100% attention to the road while you are driving. Driving is a privilage, not a right.
Inman news should not post your irresponsible behavior. This is terrible. Do you want couple of hundred thousand Realtors driving all over USA and recording themselves?
Do you want your kids to drive and record themselves?
Regarding the matter at hand, yes I have over priced listings. The main reason was the motivation and the timing of the seller. I had a seller that wanted to close after April because of tax reasons, but he wanted to list his home in November to make sure he gets buyers. The market was moving up, so we over priced the home. When April came he got the price that he wanted.
Thanks for the post and stop recording yourself while driving. I should email Oprah and NAR and complain about it.
Submitted by Garreth Wilcock on April 23, 2010 - 2:26pm.
Interesting approach. Another time to price listings above market (the term overprice still has negative connotations to me) is when the market is rising.
It's like that famous but unfortunately forgettable sportsperson misquote "run to where the ball is going to be". Price where the market is going to be - if it's going up, price higher!
Garreth Wilcock
Submitted by andreal climon on April 23, 2010 - 3:06pm.
? Are there any last standing Honest straight forward real estate agents left in side This industry?? I wonder? if it is say what ever you can to get the deal and the biggest commission check? Very Sad? If I cant trust my agent to look out for me, or the bank, well than who can I trust in the industry??
Submitted by andreal climon on April 23, 2010 - 3:12pm.
And-real it is!!
Submitted by Gloria Singer on April 23, 2010 - 3:12pm.
It is not unethical or dishonest to have a pricing strategy designed to get the seller the highest price. We listing agents are hired by the seller to get them the best price possible. Our responsibility is not to the buyers of those listings. If you as a buyer have a buyers agent representing you, then it is his job to do his homework on the market and what values are.
Submitted by Frank LLosa on April 23, 2010 - 3:53pm.
Hello Amir,
Thank you for your concerns for my safety.
I am happy to see we have a new viewer. The safety issue was beaten to death about 20 episodes ago. Here was my video on the matter:
www.youtube.com/watch?v=cM5kX-QdGN0
As for Oprah, please do, I'd love to be on her show (even if she disagrees with me). Also I hear she might be buying a mansion in DC, so I can give you a referral fee if it turns into something.
Thanks for sharing your comments,
Frank
Submitted by Frank LLosa on April 23, 2010 - 3:54pm.
Garreth,
Interesting. I guess that would work in a skyrocketing marketplace. Couldn't they also just as well wait a month or two for the increase to happen first?
Frank
Submitted by Frank LLosa on April 23, 2010 - 3:55pm.
Andreal,
Not sure I followed your comment.
The overpricing would be all for the benefit of the client. It surely doesn't make the job any easier for the agent.
Frank
Submitted by Frank LLosa on April 23, 2010 - 3:56pm.
Exactly Gloria, well put.
And for those that try and bypass the buyer agent process... I can't be to blame if they overpay.
Submitted by Paul Scheufler on April 23, 2010 - 5:31pm.
Have I ever overpriced a listing on purpose?
Yes, unfortunately. Most of my sellers insist upon it, even after I explain the relationship between price and market time. I don't recommend over pricing.
I also don't recommend doing video blogs while you are driving. Frank, if you ever get into a fender bender or rear end a cop, that is the video blog I want to see. You would probably get a lot of hits on YouTube with that one.
Thanks for your thoughts. Stay safe out there.
Submitted by Bruno Skopinich on April 24, 2010 - 2:03am.
Frank, I can't believe why so many people are so concerned about doing a video while driving.
Do they think, that there is a whole camera crew strapped to the windshield?
It is no different than taking (hands free) on a cell phone. The camera is just a small box strapped to the steering wheel. I sure you don't even notice it.
Frank... why don't you a scene while carrying a loaded shotgun... i am sure you can come up an real estate angle to tie it into :)
Submitted by Tina Gonsalves on April 24, 2010 - 4:29am.
I am very new to the real estate world, having just completed my P&P course. I am amazed at the number of hoops one must jump through in order to become a real estate agent! 60 hours of classroom instruction, pass the course, all for the right to apply to take the test. It took less to become a private pilot!
Anyway, that's not why I'm here to comment this morning.
I became interested in real estate when my dear friends asked for my help in designing a website to help them market their "For Sale By Owner" property in Tennessee. Here is a link:
http://tinyurl.com/ownyourdream
They have set the price themselves, without the benefit of a CMA. <----- real estate term I learned in class. I think it's overpriced on purpose because they feel that the wiggle room will make a potential buyer feel good about themselves when they negotiate the price down. Personally, I think it's a foolish game. Ask a fair price and you will get offers.
What do I know?
Thanks for listening.
Best Regards,
Tina
Submitted by Jim Hodson on April 24, 2010 - 6:44am.
Why price a home when an offer range will do? http://tinyurl.com/CTB-offer-range
There is a way to obtain a higher price than a guestimated fair market value in a volatile market. Publish independent appraisals and BPO's, openly state you will start the price 10% to 15% above the valuations(as stated in the BPO/appraisal) and declare you will reduce the price 1% per day. At Countdown To Buy we have shown that we can get above FMV without having to play games. The agents we have worked with have been very receptive to this strategy because there is no feeling whatsoever of manipulating or over pricing. Sellers love it, and Buyers do too. No games, no hassles, fair for everyone. CountdownToBuy.com handles all the offer management automatically and confidentially to make this approach viable.
Trust and transparency works.
Jim Hodson - CEO Countdown To Buy
Submitted by Blogger on April 25, 2010 - 1:08am.
Haha ..@Amir I loved reading your comment>>You should immediately stop video recording while you are driving. You put yourself and others at risk.
:) That's quite intelligent..
Brown@Best bed in a bag
Submitted by Frank LLosa on April 25, 2010 - 10:01pm.
Thank you Paul for your interest in seeing me wreck. I hope maybe that will keep you tuned in!
I did get cut off once. That was interesting. Actually the camera kept my road range DOWN on that one. See... it can help!
Frank
Submitted by Frank LLosa on April 25, 2010 - 10:04pm.
Bruno!
I love it!
Hum... video while at a firing range. I like it. I will have to think about how that might work logistically. Also my wife isn't much for guns, so we will see.
But if you look at past videos, I have done it while
- Sand boarding in Namibia
- Skiing down a double black diamond
- Hand Gliding
- Sledding in my back yard
So I'm very open to suggestions. And with the summer coming, and a new house on a lake... we will have some fun here shortly.
Stay tuned
Frank
Submitted by Frank LLosa on April 25, 2010 - 10:06pm.
Tina, You are right. The wiggle room overpricing technique doesn't work. The buyers will just wait for you to drop your price and then the free fall starts and the bargain shoppers emerge.
Frank
@franklyrealty
Submitted by Frank LLosa on April 25, 2010 - 10:08pm.
Jim,
How is overpricing by 10-15% and then dropping 1% until you sell it... not a game?
Frank
Submitted by For Sale By Owner Guy on April 26, 2010 - 4:53pm.
Is the moral of the story, Over price a property and gamble on behalf of your seller or Price the property accordingly and sell the property at a fair market value on behalf of your seller?
If you over price the property and get a sucker buyer, Where would you get a comp for it?
"The Book That Real Estate Agents Don't Want You To Read"
Submitted by Frederic Guitton on April 26, 2010 - 6:53pm.
Frank,
Interesting conversation you started. The way you approached was sound in both these examples; the pricing strategy was in relation to another very comparable property. This proves one thing, you have to know your market! The point here is that neither of the higher priced properties sold for the original asking price but at some level a value perception was created.
90% of buying is emotional, some may not like it but it is what it is. If your pricing creates a sense of value (and the appraisal backs it up) then keep doing what you are doing.
I would hire you as my Realtor to sell a home!
Frederic Guitton
Live Chat|Live Web Solutions
www.activSalesAgent.com
Submitted by For Sale By Owner Guy on April 27, 2010 - 7:03am.
Frank,
As a real estate salesperson who represents the seller's best interest, it would be in the best interest to put the odds in the seller's side. If the pricing plan of a property is on the high percentage side it WON'T work, then how is any real estate salesperson representing their clients best interest. Vegas was built on "Losers" betting against the Odds and taking high risk. Why would any real estate salesperson bet against the odds? Yes, if the seller agreed to an extravagant selling program, it may be "legal",,,but the real estate salesperson may also be "Liable" if the plan fails, since the odds were against you to begin with and you knew it. Again, Vegas was built on losers betting against the odds, so why would a real estate salesperson put their client in that predicament of being a "Loser"?
"The Book That Real Estate Agents Don't Want You To Read"
Submitted by Markus Arelius on April 27, 2010 - 8:59am.
Mr. Llosa,
Let me say that you're doing a great service for prospective buyers like me. Your vlog raises interesting questions about the "Trusted Advisor" status that Realtors proclaim in the US. Trusted for who? Sellers? Buyers? Neither? It also effectively demonstrates the importance of caveat emptor (buyer beware):
"There was a buyer who got super-excited about my unit, thinking that my unit was like the bargain of the century even though mine was not a bargain and the other one was even less of a (bargain)," Llosa says.
Well, it was not a bargain, and you fooled that buyer effectively with your pricing strategy. I'm sure that buyer will come back again and again for more tomfoolery from you in the future. He'll definitely come to you when he needs to sell.
Isn't it nice to have such buyers in your rear-view mirror? This is why Realtors in the US will never call back their past clients between 2004 and 2007 for referrals. There's too much anger, you see. And the shame...it's too great to measure.
The buyer of that overpriced condo was an idiot and you proved it with this blog. You did your job very well for the seller. How proud you must be. Congratulations on your that commission check.
Buyers need to know the market too and not be fooled by such weak pricing tactics. This is Econ 110 stuff. But I'm glad you're revealing these approaches because it's important for readers to ask themselves several questions when dealing with Realtors on both sides (seller's and buyer's agents).
What I take away from your piece is that seller's agents will use deceptive pricing tactics to get the sale done. I've also learned that many Realtors are probably not providing strong enough agency for buyers.
When it comes to the biggest purchase in a family's lifetime, this vlog serves as a textbook examples of what turns American's stomachs about dealing with Realtors in the same way as dealing with a carsalesman or a lawyer. Perhaps worse.
Thank you again for providing this service.
I cannot wait to see what more lies in store.
Submitted by darrell simon on April 27, 2010 - 9:26am.
Frank:
I don't think that the examples you describe are overpricing. What you described are two scenerios where the market is affected by a listing. Because many real estate markets are "micro" even one listing can have a tremendous effect on pricing of a comparable property!
Once as an appraiser I had to look at an area where the last legitimate comp sold 10 years ago... The question would be how should that comp affect the market place? Lets say for the sake of argument that two people in this area (a part of a retirement community in California) wanted to sell their home at the same time. Lets further say that of the two sellers "Jim" wants to price and sell aggressivelly and "John" just wants to feel ethical and price the home at around 3% appreciation per a year....
Well the truth is that the market will determine who is succesful and really little else. While it is possible to price the property too low to sell it is virtually impossible to price the property too high... otherwise nobody will buy it!
I see the point in the ethical dilemna you are attempting to raise... if there is price collusion, or when a gaggle of stupid investors who just left the latest property buying seminar overbid on properties then we may have ethical problems. In my opinion this type of collusion and stupid investors are what did in the major property markets that are suffering now. But one must remember that the majority of these dilitantes simply paid too much, nobody really had to cause them to overpay! Greed and stupidity can be enough.
In your scenerios likewise nobody is creating a situtation so much as taking advantage of one. If people would take the time to learn about property transactions we would all be better off. Brokers know enough legally to keep their asses off the liability train... thats what the training amounts too. IMO pricing and buying a car is more difficult, so what prevents people from doing the research during a property purchase?
Submitted by For Sale By Owner Guy on April 27, 2010 - 4:17pm.
Markus,
Great points but unfortunately no one (real estate salespople) wants to hear that. They all have their head in the sand.
In Vegas , the odds are against the gambler and for the house.
Vegas learned this lesson quickly and made Billions off suckers betting on bad odds that they would beat the house.
You would think that real estate salespeople would want the odds in their favor
96% of Open Houses fail. So why would any salesperson conduct an Open House?
Todays real estate salespeople still work in the dinosaur age with many of their methods.
Why?
Because they know no other way....
"The Book That Real Estate Agents Don't Want You To Read"