Inman

Give unrealistic sellers the ‘shock treatment’

Reality image via Shutterstock.

There’s an old saying that it’s best to be the first born, second spouse and the third listing agent. So whose fault is it when a property doesn’t sell?

There are thousands of reasons that cause listings to expire. An agent may do everything possible and the property still doesn’t sell due to lack of activity in that price range or location. Other times, the listing agent didn’t market the property adequately, or conditions under the seller’s control prevented the sale. In almost every case, however, the reason most properties do not sell is the price.

A major misconception

Many people, including a large number of real estate professionals, fail to realize that it is the buyers (and sometimes the appraisers) who determine the selling price, not the sellers or agents.

The stock market provides a good analogy for understanding this situation. Assume that an investor paid $100 for a share of IBM stock. Today that stock is trading at $60 a share. If the investor insists on getting $100 a share, he will have to wait to sell until the market conditions improve. Otherwise, if he must sell now he will need to reduce his price to $60 a share.

The same is true for the real estate market. If someone paid $225,000 for a home and today similar homes are selling for $180,000, the owner has the same choices as the investor in the example above: sell at today’s prices or wait for the market to improve.

Weak agents to blame for overpriced listings

So is it the seller’s fault when a listing is overpriced, or is it the agent’s fault? If an agent has an overpriced listing, usually it’s her choice to take the listing. If your area is currently experiencing a strong seller’s market and your listings are not selling, this usually means that you allowed the sellers to overprice their property without scheduling regular price reductions. Alternatively, it can also be a sign that you weren’t strong enough to walk away.

The good news about an appreciating market is that if you wait long enough, the prices may catch up with where you listed the property. Moreover, if you do happen to underprice the property, the market will bid it up. The challenge: How long will those sellers be willing to wait when everything else around them is selling? Chances are they will blame the agent rather than the fact that their price is too high.

On the other hand, pricing property in a declining market is extremely difficult. You may use the comparable sales data from as little as two weeks ago, but by the time the property sells and is appraised, the prices may have declined even further.

Build price reductions into listing agreement

If you are in a seller’s market, it’s smart to follow the “10 showings or 10 days” rule. In other words, if properties are selling within a few days of coming on the market and your listing has had 10 showings or has been on the market for 10 days with no offers, then it’s time to reduce the price.

Ideally, it’s best to schedule the first price reduction within 10 days of when the property comes on the market and to do this as part of the actual listing agreement. Here’s why: The bulk of your showings will take place during the first three weeks that the property is listed. If you wait too long, you will miss the bulk of the current buyers. Your listing then becomes stigmatized among both agents and buyers as being “overpriced.”

Furthermore, most sellers are optimistic that their property will sell quickly. If it doesn’t, having your price reductions scheduled as part of your listing agreement saves you from having to go back and face a much tougher negotiation process.

If you are still experiencing a declining market, it’s doubly important to persuade the sellers to schedule regular price reductions. If prices are declining, avoid “chasing the market down.” This usually means listing the property 5 percent or more under the comparable sales.

Overpriced listing “shock treatment” approach

(Caveat: Your listing belongs to your brokerage. Make sure that you clear this strategy with your supervising broker first before using this.)

I remember attending a Mike Ferry event a number of years ago where he shared a powerful approach for addressing the issue of overpriced listings. Here’s what Ferry, a real estate coach, recommended that agents with overpriced listings do:

First, knock on the seller’s door. Here’s what to say:

“Mr. and Mrs. Seller, I have to apologize to you. You see, I wasn’t strong enough to tell you that your price is too high, so I have come to release you from your listing.”

Generally the sellers are so shocked by this approach that they will often be willing to discuss lowering the price. If not, you have saved yourself additional time, money and aggravation by letting an unrealistic seller go.

Not every listing that expires is the agent’s fault, even if the sellers believe otherwise. See part two on Thursday to learn more about how to cope with difficult sellers who are unwilling to address the other issues related to their property not selling.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of the National Association of Realtors’ No. 1 best-seller, “Real Estate Dough: Your Recipe for Real Estate Success.” Hear Bernice’s five-minute daily real estate show, just named “new and notable” by iTunes, at www.RealEstateCoachRadio.com.