Friday, April 18, 2014

Open Letter to East Bay Sellers: “Please, Raise Your List Price”

Yep, I said raise your list price.  Some real estate professionals can’t believe that these words would come out of another agent’s mouth.  The more common challenge is getting a reasonable and marketable list price from an emotionally attached Seller.  (Everyone tends to think their home is the best on the block, myself included.) 

Enter the East Bay Real Estate Market, where low inventory translates to multiple offers.  Some say you can’t price a home too low in this hot market as the price will self-correct upwards and then some when the bidding war happen.  This is not an absolute truth.  Seeing multiple offers all around has us thinking that Sellers may in fact need a new strategy.  Here are our reasons for asking Sellers to increase their price:

1.       It’s Worth It! Not to overstate the obvious, but we are in a booming market.  We started talking to some of you a while ago when you first thought about putting your home on the market. While you may have had a price in mind based on that initial conversation, it is time to revisit the recommended sale price. Your home is likely worth more.

2.       You Might Be Missing the Mark. Too low a list price may put the property below the range of its targeted buyer.  If you expect a million dollars for your home, you can’t sell it at a bargain basement price.  Buyers who are qualified to spend $1,000,000 may start looking a bit lower--but not substantially so.  After all, they want a million dollar house, so why should they start looking at homes in the $700s?  If you list your million dollar home at $700,000, and the buyers looking at it can only afford $800,000, you may miss your audience.  To increase your odds for success, price your home within 10% of your targeted sales price.

3.       Bidding Wars Don’t Always Bring the Top Price. Everyone in this office has heard stories of the houses that sold for two times the asking price.  These are specific anomalies that, because of their freakish nature, gain the most buzz.  They are not the rule.  In markets where homes sell repeatedly with multiple offers, more predictable patterns begin to emerge.  A general pattern might be noticed, for example, whereby a home with three offers may go over asking by 10% or so, whereas a home with 14 offers may go over asking by 30% or more.  These overbids tend to cap out by about 40% when buyers begin to step down from the competition based on affordability or perception of a property’s value.  Here’s how the numbers could affect you: if you price a home worth $600,000 at $400,000, you may get lots of offers based on the unbelievably low price (not surprisingly, many bargain hunters are included in this group).  However, those offers may top out at about $560,000--40% over--even in the spontaneous bidding war. It may be worthwhile to instead start at an asking price of $550,000, get a few offers, and eventually sell at $605,000 (while only 10% over, still a higher net than the previous example) . This is tricky because most Sellers still see the sheer numbers of offers as proof of success—and not the potential net. 

4.       Breaking Hearts Isn’t Easy.  It is often fun to put on a good show and charm dozens of buyers into writing fabulous offers.  It feels especially nice to field all the love letters that come in telling you that your home is the only one on the planet that could house their future memories.  But there is an emotional letdown that happens after the 24 offers are heard.  The heartache comes when you have to tell 23 buyers—all of whom fell madly in love your home—“we’re just not that in to you.”   Heartbroken buyers get fed up watching the homes they like close at 30% or more over the price they saw at the open house.  This frustration, if left unchecked, actually begins to force Buyers out of the market and onto the sidelines.  This could end up tamping your ability to receive offers.  We have gotten calls from clients who won’t make an offer while under fierce competition from other buyers.

5.       Tell Me What You Want, What You Really, Really Want… Perhaps the best argument for a higher price is based on your own instinct and the price you are ultimately willing to accept.  This determination should come after a frank and realistic conversation with your agent about where the value truly lies.  Assume you only get one offer (and it does occasionally happen in the East Bay), can you take it?  If the answer is a quick “no,” your price is not realistic and should be revisited.

Price is the most important marketing decision related to the successful sale of your home.  Deriving the right listing price is complex.  If you would like to speak to an expert about the best strategy to maximize your home’s value, please reach out to one of our experienced agents.  

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