“Can’t we just try it?”
“We can always come down.”
“A buyer can always make an offer.”
“I had a higher appraisal.” (p.s. 10 years ago!)
“I need to get my equity out of it.”
I could keep going but you get the gist. These are the same old tired excuses sellers have had forever! Good news, if you know this is what they think, then you have an opportunity to prepare to win that fight.
“How” you might ask? Most sellers don’t truly understand the consequences of overpricing their house, but there are many.
Your job is to draw a very clear picture of the pain of overpricing. Here’s some of the ammunition you can use to craft your strategy.
By the way, did I mention there are major consequences of taking an overpriced house for you too? But that’s next week’s Strategy Session.
Consequences for the Seller
When you consider what an overpriced house can do to a seller, there are two categories: mental/emotional and financial.
Mental/Emotional Consequences Include:
Sitting in idle – Not being able to get on with his/her life. Imagine not being able to make plans.
Rejection – The market has rejected the house and most people have a strong connection between our house and our identity, which is a lot more personal.
Embarrassment – Let’s face it…it’s embarrassing to have anything you love and own to be rejected. You become worried that friends are making snarky remarks about why the house has not sold (think: “I told her that was a bad color when she painted it.”)
Stress – There’s really a couple of stressors happening; keeping the house in “model order”, which is not how you live AND the family stress. Selling a house is hard and made harder when the market isn’t cooperating.
Financial Consequences Include:
There are so many stats on the problem of overpricing but I’m going to start with one from the National Association of REALTORS.
Of houses that are on the market more than 17 weeks, 45% of the sellers took less than 90% of the asking price. This stat essentially confirms that the longer a house is on the market, the worse the offers become.
If you think about it, this makes sense. We’ve all seen it….a house sits on the market for a while and everyone (including agents) begin to ponder the question, “What’s wrong with it?”
Often a seller will make price adjustments hoping that this move will motivate but many times this move only makes people sit and watch.
But now let’s talk about local statistics…in my area (I’m in Raleigh, NC where the market is very hot) we are fortunate to receive great statistics. A statistic that has been consistent for years is that an overpriced house takes three times longer to sell and has a much lower sales price to list price ratio.
By the way, want to understand which statistics you should have for your market? Click here for a list.
How to Combat Seller Pricing Arguments
Be prepared with the relevant and local market statistics you need to win the pricing argument before it even begins!
Here’s an example – I saw a house go on the market at $225,000 which was $25,000 overpriced. After being on the market for 60 days, the price was dropped to $200,000, the price originally suggested by the agent.
Another 60 days passed and they received an offer. Instead of this offer being 98% sales price to list price ration that it would have likely been if priced at $200,000 from the beginning, the final ratio was 88%.
That’s a $20,000 difference AND the house stayed on the market 3 times longer. Those are some big consequences. AND that didn’t take into account the costs of the house sitting or the negotiation position on repairs, etc. The overall impact on the NET can be substantial.
Why did the seller take such a low price? Simple: desperation. That’s what time clicking by does; it reduces seller’s choices.
Yes, I know I’m preaching to the choir. But what does this mean to you? It means you have to be skilled at preventing the seller from forcing an overpriced listing.
Here are my recommendations:
- Know your local statistics. You can get a list of which one you need here.
- Be ready for the objections OR better yet, address the objection before they even have it.
- Create a chart similar to the one above to show the seller the risks.
- Learn to kick ass at pricing. That means being totally competent at the CMA process, the discover of the Market Study, and the presentation of the information.
Having ALL agents be better pricing is good for our profession, so please pass this along to your colleagues!