Every week in Greenwich homeowners try to get their listing agents to price their house too high. The common seller’s wisdom, which certainly seems rational, is that if I price my house too low, I will leave money on the table that otherwise I will be able to capture by pricing my house above fair market value and coming down. There is probably no better way to leave a significant amount of money on the table then to follow this pricing strategy.
You would think that the ideal way to price a house is slightly over what you think it will sell for and then negotiate with the buyer. Ideally, you get near the list price or slightly below it. In most markets this is the wrong strategy. It is definitely the wrong strategy in a hot market.
But first, let's talk about the normal market where there is a balance between inventory and buyers and sellers are confronted with a fair number of competitively priced listings online. In that situation, the problem with pricing your listing high is that vastly fewer people will come to see your admittedly overpriced listing. Your house may feature all of the new items that today’s buyers want but it is priced too high to attract all of the potential buyers, particularly buyers that are willing to make good offers.
What too often owners will do is to seek real estate advice that will validate their belief that they should listen their property as high as possible, so that they can generate offers that are as high as possible. In Greenwich real estate you can always find an agent who will tell you that not only is your preferred price the perfect price, but you might even want to consider a higher list price. Do not listen to these agents, they want your listing, often because they haven’t sold a lot of listings recently.
The problem with this formula, and these agents with their siren songs, is that very few buyers play the game that way. Buyers don’t gravitate to listings that they think are priced too high, they will always go to what they think is a bargain first.
For buyer’s the actual price of your listing is only the starting point. Buyers need to factor in not only the sales price, but also the cost to make repairs, the cost to renovate it to their taste and very importantly, for our two income families, the opportunity cost to take lots of time off from both their demanding job to meet with contractors, suppliers, architects and repairmen.
Sellers often believer that there is a super-aggressive buyer out there, who will fall in love with their house, as they have, and will pay anything to get the seller’s house. In addition, that they know there is buyer who is represented by an out-of-town agent who does not know this market and thinks not only is the list price reasonable, but that they will have to put in an over-list price bid to get the house. This does NOT happen in today’s market, if it ever did. If you want to get the maximum price for your house, it is much better to have multiple bids from buyers who have the ability to close at their offer price.
We don’t want a single “highest price” offer from a single buyer, but the several buyers that are willing to make an offer on the house. What multiple offers tell you is that you have determined what today’s fair market value is for your house. If you want to know what the highest price is for your house, you can’t get that from one single data point. A single offer doesn’t tell you your FMV.
Surprisingly, or if you have a good feel for human nature, not surprisingly, those people who can only afford to make a low-ball bid will filter themselves out and rarely make offers in a multiple bid situation. Most buyers don’t want to be laughed at. They don’t want to offer something that is so low that the seller rejects it out of hand. Who wants to be told that their ability to purchase a house in Greenwich is so inadequate that they really shouldn’t have wasted their time making an offer.
This applies not only to those who are severely limited in what they can offer, but also to people who are able to make an offer but are more concerned about overpaying than getting the house. It is only human nature not to bid, if emotionally they think they don’t have an adequate offer. If the house is priced too high, people just won’t put in an offer. I can’t tell you the number of times I’ve told my clients just put in an offer and they won’t do it. People who feel they can only make an “inadequate” offer, feel that they would be personally inadequate and hence won’t bid. With over-priced listings, you will see vastly fewer offers, even of offers they might otherwise accept.
One on of the listing agent’s prime jobs in a situation where multiple buyers are considering making an offer is to get them to actually make an offer. Having six offers over list price is better than having two offer; one offer well over list price and the other offer at list price. In this situation, the single offer that is well over list price is likely to withdraw that offer or to try to start renegotiating their offer as soon as they realize they are a party of one. This may not directly request a lower price, but now they want a mortgage contingency, or an inspection contingency or they need additional time to further investigate the issues that their inspection turned up.
If you are a seller, you want multiple non-contingent offers that are close to the highest accepted offer. When the best offer starts to get cold feet, the counter is not to further negotiate with the highest offer, but to dump them for the next best offer that has all their ducks in a row. If the “best” offeror knows that any waffling will result in their losing their dream house in Greenwich, they will stick to the offer. If it turns out that that the highest offer wants to remake the deal in their favor with lots of contingencies, so that while their offer is the highest priced offer, it is not the best offer, the seller can simply say no to these requests or move on to next highest offer.
What you want are 3 – 6 offers over list that are closely grouped. But, how do you get to that situation? You get that by putting the list price low enough to generate multiple offers that are close together and who are willing to waive the mortgage contingency, whether they need a mortgage or not.
You can’t get this result, if you price the house at an “aspirational” price, then no one is likely to make an offer or might only get one offer. This was the situation that we had for years, but we hit these super-low inventory levels. If your micro-market at this time is a buyer’s market, even the surrounding areas are strongly pro-seller, you are likely to get only one offer. In that situation, you have to carefully nurture that offer to keep it alive throughout the bidding process. If you can only get one offer, you have to make sure that you get that offer to contract.
In Greenwich, the rule is that there is no deal until there is a signed contract. So just because you an accepted offer, don’t stop marketing the house.
The above multiple offer strategy works when the market is hot. If the market is cooling, or your house needs lots of work, or if you have multiple closely priced competitor in that neighborhood, you can still sell you’re your house at a good price, but you are rolling the dice. Instead, of having multiple bidders to push the price up, you have a single buyer, or even a couple of buyers bidding the price down. They are in control, but you are too. The problem is that control comes from the right of either party to walk away from the deal, which is not ideal solution for either party.
Right now, we have lots of buyers that would like to buy and only a very limited number of listings for them to buy. However, those buyers are not nearly as desperate as they were at this time last year. They want a house in move-in condition, in a popular neighborhood, in the right school district. If your house needs lots of work, is in a neighborhood that is seeing dropping demand and is only for buyers who don’t have kids, then you have to be in nurturing mode.
When you get an offer make sure you work with the buyer to get it to contract. The hardest thing to do is to go forward when you want to tell that arrogant buyer to stuff it. Do not make the deal personal, even though it is about the home where you raised your family. This is a business transaction, and you should treat it that way, divorce yourself from the emotions and work with your agent to get to a signed contract.
You owe it to your family to get the best price, not the best short term emotional feeling when you tell the rude buyer to take a hike. On the flip side, if you have a good back-up offer, because you priced your house right to begin with, you can tell that buyer to put up or shut up or you’re going to your backup offer.
Pricing is power in this market.