Overpricing is a problem. You’d think in such a “hot” market that it wouldn’t be an issue, but it is. I’m not trying to dog sellers, but let’s talk about some of the most common pricing mistakes right now. I hope this helps.
1) Getting married to the list price: Sometimes it’s like sellers get married to a lofty list price and become unwilling to budge – even when buyers are refusing to pay that much. It’s as if sellers get paralyzed and cannot move beyond a clearly unrealistic price. My advice? Listen to the market and budge on price as needed.
2) I need this amount to move: I’ve encountered a few sellers recently who priced based on how much money they needed to move. But the market doesn’t care about personal finances or plans. The market only cares about paying a reasonable price for the property.
3) Headlines: At times sellers hear sensational headlines like, “Values are increasing more rapidly than ever,” so they price according to a headline rather than similar sales in the neighborhood market.
4) Out of touch with picky buyers: Buyers these days tend to be more picky than ever about what they purchase, but I’m not sure sellers are really in tune with how finicky buyers are about price, location, and condition. You’d think buyers would be so desperate to get into contract and pay anything because of a housing shortage, but they’re actually quite patient in many cases because they want to wait for the right property and feel like they’re paying a fair price. My advice? Price for real buyers in the neighborhood market rather than that one mythical “unicorn” buyer who is going to pay more for some reason.
5) Sales instead of comps: The most common pricing mistake I see is pricing according to a sale down the street that really isn’t comparable. So a seller says, “I know that house is totally remodeled with a pool, but someone’s going to pay the same amount for my house.” My advice? Price according to similar homes that are actually getting into contract rather than dissimilar properties. Be careful about hijacking price per sq ft figures too.
6) The fallacy of summer: We hear that summer is the hottest real estate season, but the spring season is actually the hottest in many markets throughout the country. By the time summer rolls around the market is actually beginning to cool because it’s been hot for almost two quarters already. During summer listing volume is just about to peak for the year, and that means it starts to take longer to sell, prices often begin to soften for the season, and buyers gain more power to negotiate. My advice? Be realistic about prices today.
7) Zillow: I can’t tell you how often I’ve heard, “But Zillow says my house is worth X amount.” I know, Zillow says stuff like, “We’re only a starting point and a ballpark figure.” Yet in my experience sellers rely heavily on the Zestimate and very often treat it like a definitive ending point rather than a ballpark. Remember, Zillow doesn’t know anything about condition, upgrades, smell, etc… Sometimes Zillow nails the value, but other times it’s off by a substantial amount – even in a tract neighborhood. My advice? Take “The Big Z” with a grain of salt.
8) Other: What else are you seeing out there?
I hope this was interesting or helpful. In light of the market beginning to cool for the season, I thought scratching out these thoughts might be helpful and even save sellers some money (and heartache).
Questions: Which mistake do you see most often? Any stories or insight to share? I’d love to hear your take.
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I enjoyed your post! Great list. I am seeing many of the same things in my market. I was just visiting with a listing agent who also told me that buyers are becomming very picky about what they want to buy. There was a time when that was not the case, but the tides have changed in the market. I also regularly see what you mentioned about people just seeing a sales price and automatically assuming that it reflects their home’s market value. Thanks for greay information, as always!
Thanks Jamie. I appreciate it. Buyers have more knowledge than ever and they also have higher expectations too. When selling anything we have to know our target audience, and it would be wise for sellers in real estate in today’s market to get in tune with buyers. What are they thinking? What do they expect? What do they pay more or less for? In some markets of course you do have a “name your price” sort of market where sellers can command almost anything they want. But in Sacramento and many other places it’s much more price sensitive where if the price isn’t right, the offers don’t come. It’s an interesting world out there. Thanks again.
Hello Ryan as always great stuff. Down south of you I am now seeing sellers who think the sky is the limit running into issues as the market I am in is having trouble with homes priced from $500,000 to $1,000,000, whether it be tract or custom home. Just spoke with a listing agent yesterday who indicated they priced the property right where the last sales closed in a new tract development. The only issue is the home has been on the market for 90 days and nothing, not a showing. So it is important for sellers to understand that what may have happened 4 months ago, may not be relevant now. What I find interesting is the fact that a lot of sellers are choosing to not listen to their agent. Then they get frustrated when things don’t go like the headlines. Course being married to their list price doesn’t help anything at all. Great job as always Ryan.
Thank you Brad. Excellent commentary. I find the same thing that sellers very often struggle to listen to their agents. It’s like they get trapped into a subjective mindset to the point they won’t listen to the market, agents, or even appraisers at times. When an agent hires me in a situation where a property is not selling, I always ask the agent, “Will the seller be willing to listen to an appraiser?” If not, then maybe it’s a waste to hire an appraiser. If so, that could be just what a seller needs.
I think your comment is perfect too in that it underscores different price ranges could have different dynamics. I find in my market anything under $300,000 feels more aggressive than the highest prices in town. I think sometimes we generalize real estate trends and expect the trend to apply to every neighborhood and property type, but that’s really not the way it works. Markets are not fluid where price changes and dynamics apply equally in every neighborhood or price range. Thanks again Brad.
I see a lot of #2. Like you said though, the market doesn’t care about personal finances and it’s a good idea to get the perspective of a third party such as with a pre-listing appraisal. Nice list, Ryan.
Thanks Tom. It really is an easy mistake to make. Sometimes it works out well, but the market will only pay what it will pay. I know a property listed right now around $575,000 when it should probably be listed closer to $450,000. The seller has chosen to ignore pricing advice from his real estate agent and ignore all similar homes in the neighborhood too. The problem is the seller needs a certain amount to move, and has priced accordingly. It’s no surprise he hasn’t had any offers yet after several months of market exposure.
An overpriced listing can be dangerous. We have a much more sophisticated consumer these days that has access to property market history. I can’t tell you how many times a buyer has asked me “what is wrong” with a property that has an uncharacteristic amount of days on market. Usually what is wrong is not the property, but the expectations of the seller. Back in the old days of private data….seller’s would “relist” to show a fresh market offering and we all know it just doesn’t work like that anymore.
Thanks Barb. Very true. More data has certainly caused buyers to be more discerning and picky. Whenever I see a property that’s been on the market for longer than typical, as an appraiser I too ask what is wrong. Why is it not selling? The culprit is usually price, though to be fair sometimes it’s a problem tenant, inadequate access, no MLS photos, etc… There is always a story to understand. You gotta nail the price though in today’s market!!
This is why I contact agents on every “longer than average ” days on market sale. Typically it’s the seller just refused to list at the market accepted price point. In Portland I hear sellers say well I’ll just wait for a cash buyer. But cash buyers are not as predominate as 4 years ago.
Thanks Taunya. I appreciate it. Waiting for a cash buyer sounds like a great idea, but does that buyer really exist for the price point? That’s a viable question.
It’s just the same here as you described. Cash used to be about 30% of the market in the entire region in portions of 2012 & 2013, but now it’s 15%. Or in Sacramento County cash hit its peak at 36% of the market in 2013, but it’s now nearly 1/3 of that at 13-14%.
Excellent post Ryan!!!!! Thank you for reminding us of this. I need all the help I can get to better explain how the market works to my sellers! 😉
I hope you and the family are having a great summer!
Thanks Bev. I’ve heard that sentiment quite a bit. It’s a weird time in real estate because so many sellers just aren’t listening. They aren’t listening to agents or the market. Do they really want to sell? That’s sometimes the question I ask.
Our summer has been wonderful so far for the most part. I hope yours has too.
I continuously enjoy your postings in Appraisal Buzz. Your insight, dedication, and innovative thinking, bring joy back to this profession. I’ve been in this field 25 years and your articles actually make me enjoy appraising again. These discussions and articles are definitely much needed among appraisers who mostly argue amongst ourselves over the slightest difference in opinion. What do you expect from an aging profession, in which in the end, boils down to…opinion? As per seller mistakes I see most often…one of the most common and simplest errors is the dependance on sales price/square foot ratios given by realtors to clients. This figure should be excised from any determination of sales price unless dealing with a large PUD of some sort with consistent features of adjustment data. With most sellers and agents I encounter it seems the fall back proof positive of pricing. How can this be when the figure includes land value? Frontage influence? School district? The list goes on and on as to the variables this outdated ratio includes. With the new statistical data analyzing capabilities available to appraisers and realtors alike, this figure is outdated and unnecessary.
Hi Thomas. Thank you so much for the kind words. I really appreciate it. Now that you have an approved comment too, you can post without moderation.
I hear you on arguing. It’s easy for appraisers to sometimes fall into the trap of arguing over petty things. It seems like it’s part of the culture of the profession, though it’s likely an obstacle for the profession too. Let’s be better by listening, remaining humble, and helping each other get better.
I completely agree about using price per sq ft. It’s a metric to watch and know well in a neighborhood, but it’s one of the easiest ways to be wrong if we rely on it exclusively…