10 Ways to Tell if You Are Overpriced

I recently received this article via email from our corporate office and had to find the hard link on the web for your edification.  The short story:  if you are having problems getting either showings or offers, it is very likely an indicator that your home is overpriced.  This article has a list of 10 ways to determine if your property is overpriced.

According to the article, some sellers are suspicious that agents are pushing to reduce prices simply to move inventory.  What’s funny about that statement is that sellers will also get upset when the listing expires without a purchase agreement, and the house was listed at their price. 

Listen, agents don’t get paid unless the property closes; that also means that the sellers don’t get paid until the property closes.  Those look suspiciously like similar interests to me!  And on top of that, the higher the sales price, the more the agent will get to put in their pocket.  So really, reducing the list price is pulling money out of the agents’ pocket.  For all of the sellers complaining about how much agents get paid, simply agree to lower your price and your agent automatically gets paid less!

Win-Win for everyone, right?

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0 Responses to 10 Ways to Tell if You Are Overpriced

  1. You might want to read Levitt’s “Freakonomics” for a nice analysis of how the seller’s and agent’s interests are not so neatly aligned.

  2. SC,

    “Freakonomics” was a great read! His assumptions about the behavior of real estate agents, while stereotypical for our behavior, are just that…stereotypical. Frankly, we’ve earned that reputation. I have always believed folks are quicker to complain than they are to praise, so naturally the worst gets amplified.

    Where, specifically, do you see that our interests diverge from that of the seller’s?

  3. What I remember from reading Freakonomics is that if the selling agent’s comission is 3% of the sale price, a $10,000 reduction in sale price results in the agent only getting $300 less. But of course the seller has lost $10,000 (assuming that the house could have sold for the higher price).

    For example, dropping the sale price from $300,000 to $290,000, the agent’s comission only drops from $9000 to $8700. But the homeowner is out $10,000!

    And since the agent doesn’t get paid until the house sells, it’s to the agent’s advantage to sell the house as quickly as possible, and if they can cut the price to make a quick sale, it’s to their advantage.

    Freakonomics backed up this theory with real estate data from California which showed that houses that were owned by real estate agents typically stayed on the market longer and sold for a higher price.

    So that’s where the “interests diverge”.

    PS: I’ve got nothing against real estate agents, by the way. 🙂

  4. Peter,

    While for many sellers it does come down to a question of their net proceeds, I have seen sellers that are also sensitive to timing and convenience when selling their home.

    Freakonomics does a great job in pointing out the differences between how agents advise their clients and what they do personally. However, I believe Leavitt does not explain very well at all the positions that the two are in when it comes to selling their homes. And how could he? He is examining empirical data through multi-lists, not interviewing each seller to determine their needs in selling their home. Clients sell homes for a variety of reasons as do agents. But agents have the benefit of working in the market, seeing trends before the consumer, and possibly planning for the length of time on market better than the client that needs to be out of state in 45 days.

    Clients may reveal that they need to sell their home within a specified amount of time. A seasoned agent will make marketing recommendations that will assist the client in meeting those goals. This includes pricing the home to attract showings > offers > a sale within the time specified by the seller. The blanket assumption that the seller loses X number of dollars is a bit of misnomer, specifically if time is more important to them than net proceeds; net proceeds, in some sense, are a function of time. Someone that needs to sell in 45 days does not have the luxury of waiting, therefore the home needs to be priced at or below the market value (depending on current market conditions). It is simply not as cut and dry as Leavitt makes it out to be. And as such, there is a high probability of agents using this knowledge to the detriment of their clients.

    I understand where “interests diverge”, however more of an explanation is needed for what conclusions Freakonomics draws. While numbers may themselves be black and white, conditions that generate those numbers may not be so easily discernible.

    Thanks for the push back Peter! I too have nothing against real estate agents! Oh, wait a minute……;)

  5. You have the makings of a very good follow-up study.

    I believe Levitt found that there was only a 10-day difference, on average, in the number of days the houses were on the market, yet the difference in selling price was over 3%. Perhaps, as you suggest, this difference can be explained by the buyers’ being in a hurry (perhaps the difference was in variance more than mean), or the agent’s skillful negotiating when she has only her interests to represent. Most racial and gender bias is subconscious, unfortunately, and I wouldn’t be surprised if there were some bias–or subtle lack of initiative–on the part of good-hearted agents.

    My point was only that there’s no theoretical support for the claim that agents’ interests are perfectly aligned with their clients’. That said, I think they’re close enough. (And my mother was a real estate agent, so I don’t have anything against them, either!)

  6. sc,

    Ahhhh, the warm soft glow of coherent discussion!

    You are bang on in your analysis! Very rarely are the interests of all parties involved in a real estate transaction perfectly aligned. To attempt to paint a bleak picture of the sometimes subtle divergencies between seller and agent, as Leavitt attempts, is just as misguided as saying we are perfectly aligned.

    Again, though, Leavitt is only staring at empirical data, not the subjective reasons involved in generating those figures. As far as numbers go, he does a great job in extrapolating patterns from the chaos of numbers.

    All of this discussion is to say what exactly?

    For the consumer, simply understand that the agent has their priorities and you have your priortities. In selecting an agent to work with, the consumer needs to make a decision as to how closely aligned are the two sets of priorities.

    For the agent, you need to strive hard to make your client’s priorities yours. The closer the two sets become, the more successful and less stressful the process.

  7. I am a licensed Realtor in Ma and recently had my own house on the market. I’ve had it on the market for4 months. I lowered the price 3 times because I was in a hurry to sell. I think each client is case by case, if they need to sell due to financial difficulty or they have an offer on another house, I strongly urge a price concession. If there is no hurry, I make more if we can sell for more. If its on too long, with no offers etc.. and I’ve paid big bucks in advertising, I may ask for a lower price, or ask to cancel the listing.

  8. I am a realtor in MI, I just sold my condo in TN.
    I listed it where my realtor in TN said to list it.
    After a month, I suggested we lower the price, we did and we got a offer right after the holidays.
    2% under asking price. I could have waited a while but I didn’t want to.

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