Friday, August 15, 2008

"Just make me an offer"

The market is a fickle creature. A house is only worth what someone will pay for it. As a Realtor, it is my job to help a seller price a house properly. I do my best to price a house in a range where it will sell within three to six months. In a market like the current one, following an inflated market from earlier in the decade, I may be telling a seller a price lower than what he or she wants to hear. That is hard to do, but still is something that I do because doing anything else would not be ethical.

Some sellers in the nation are coping with the idea of the lower price by deciding to shoot the moon. The seller asks to list as an inflated price, something the market will not and cannot bear at the moment. The rationale is that someone may come along who falls in love with the house and is willing to pay the higher price. I will not deny that this has happened on occasion. The seller takes a gamble and wins big. This is far from the norm, though.

Most often, the seller tells us, the Realtors, just to have buyers make an offer and they will negotiate. There is a couple of glaring problems with this reasoning.

Time and again, it has been shown that buyers tend to only look at homes priced up to 103% of their buying ability. If a home is priced 5% or 10% too high, the right buyers will never see it. For example, say a home should be priced at $200K, but was priced at $220K. Buyers who can afford to spend $210-230K will look at the houses priced in that range and logically pass by the overpriced home. Buyers who can spend $190-210K never see the house because they stopped their searches at $215K.

A second problem is that many times, the offer that would bring the price of the home to a reasonable level would be considered a lowball. Many buyers shy away from making absurdly low offers; they do not want to insult sellers. Offering $180K for a house that is priced at $200K feels awkward to many people, so they pass the house by.

Third, when a house is overpriced, it sits on the market for months or even years. In a good market, houses turn over within three to six months. As overpriced houses sit there, they contribute to the excess inventory in the current market. People see the house sitting on the market forever, and they start to think the market must really be bad if a lovely house like that cannot sell, further perpetuating the cycle of perception that is often at the root of economic downturns.

Finally, when a house is priced incorrectly,the seller becomes frustrated by the inability of the Realtor to sell the house as the months go by. The Realtor, likewise, becomes frustrated by wasting time and money advertising something that will never sell at the asking price. As the term of the listing contract ends, the seller moves on to another Realtor, and the first Realtor is upset because she could not do her job properly.

Pricing a house incorrectly is rarely a winning situation. I hope that as Realtors, we can have the courage to refuse a listing that is overpriced and I hope that sellers can learn to accept that pricing must be for today's market, not the market of two years ago. The sooner this happens, the sooner the housing market can turn around. Let's stop hearing the words "If it is priced too high, they can just make me an offer."

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