Originally posted at Herring Consulting Co Blog on September 13, 2018
You should never leave money on the table.
Unless you’re at a restaurant, in which case you should always leave a little on the table for your server.
But when we’re talking Real Estate, you should work to protect value. If you undersell to one buyer when another would have paid you more, you’re giving money away. This seems basic, but it’s easier said than done when you don’t know the market value of your property. How do you protect what you don’t know?
Our answer is to get a pre-listing appraisal by a qualified and experienced appraiser.
Another strategy we see sometimes, often with disastrous results, is listing the property high and then decreasing and bargaining down. In addition to adding time to the sales process by driving away reasonable buyers, this method can also decrease the price and earn you less.
Let’s say a buyer is looking at two similar properties, House A and House B.
House A’s initial listing price is $420,000 and it’s been on the market for a month. The listing agent says they’re showing it several times a week and already getting offers. The listing agent is so confident about the asking price that they don’t even really bring it up and instead talk about what a wonderful property it is.
House B was originally listed for $520,000 six months ago and has seen steady price reductions over that time and now is priced at $420,000 (just like House A). The seller doesn’t understand why no one wants the house at such a great deal and someone is going to “steal” this property if they have to take much less than $420,000. The seller is willing to negotiate on price to get the deal done and focuses on price (because they’re probably panicking at this point).
House A is priced right – it didn’t sell the first day, but it is getting a lot of interest. The listing agent is confident and doesn’t need to entertain any low ball offers.
House B’s price seems to be in free fall. People looking at the multiple price reductions are wondering what is wrong with the House B and why no one wants to buy it. There may be nothing wrong with the property, but by pricing the property too high, a good property was made a bad value for buyers. Since the price has already come down $100,000, why would a prudent buyer not ask them to come down another $50,000? The sharks are circling in the water around House B.
Both houses currently listed at $420,000. Both similar to one another. The key difference is market perceptions. Which one gets the higher offer?
If you are looking to sell your personal home, or if you are an agent working with a homeowner and if there is any uncertainty about the value and direction of the market, typical marketing times, typical listing to sale ratios, and overall market demand, please do yourself a favor and get a pre-listing appraisal so you’re not going into battle unarmed.
Let us know how we can help!
Herring Consulting Company is a real estate appraisal and appraisal review firm located in historic downtown Winter Garden, FL. The firm’s owner, David B. Herring, is a state-certified general real estate appraiser with over 21 years of experience in valuing all property types. David has a history of speaking on the topic of real estate valuation and review to local real estate offices and lenders.