“Nothing is worth doing unless the consequences may be serious.” – George Bernard Shaw
In the competitive world of real estate, guiding homeowners through the complex journey of selling their property is a paramount responsibility. A crucial step in this process is educating them about the realistic market value range of their property and, subsequently, discussing the immense importance of establishing the most effective asking price. This article, an abridged excerpt from my book, The Happy Agent, delves deeply into the critical subject of setting the right asking price – a cornerstone for winning listings and achieving successful sales.
The Perils of Overpricing: Why Realistic Pricing is Non-Negotiable
In their eagerness to secure a listing, some agents, perhaps driven by hunger, lack of preparation, or insufficient skill, may succumb to a homeowner’s demand for an improbable sale price. This “easy route” often leads to nothing more than wishful thinking and a prayer for a miracle. It’s a tempting path, but rarely the wisest. Another questionable practice is to accept an overpriced listing, not genuinely expecting it to sell without a price reduction, but rather treating it as a lead generator for potential buyers. Pragmatically speaking, while I believe the latter to be an ignoble and ethically dubious practice, some might argue it can be a cheaper alternative for acquiring new buyers compared to traditional advertising methods. However, the long-term damage to an agent’s reputation and client trust far outweighs any perceived short-term gain.
Understanding seller motivations is key to a successful partnership. Sellers generally fall into two distinct categories: those who are genuinely committed to selling their property and are prepared to negotiate within a fair market value, and those who steadfastly refuse to sell unless they achieve their specific, often inflated, asking price. A significant majority of expired listings, unfortunately, originate from this second group. Before you commit to accepting any listing, it is absolutely essential to discern which category your prospective seller belongs to. This critical assessment will inform your entire strategy and potential for success.
Navigating Challenging Listings: Strategies for Agents
If your thorough market analysis indicates that the odds of selling a property at the desired price are poor, I strongly advise that you seriously consider declining the listing. Accepting a listing destined to fail not only wastes your valuable time and resources but can also damage your professional standing. However, if the would-be, yet unrealistic, sellers exhibit earnest intent and a willingness to understand market realities, you might consider accepting the listing, but only with clearly defined provisions. In exchange for your agreement to market their property, it must be explicitly understood and agreed upon that you will extend a minimum level of effort and expenditure during the marketing process. Furthermore, to prevent stagnation, they must agree—in advance—to a series of predetermined price reductions if the listing fails to sell within sequential time frames, for instance, every 30 days. This proactive approach ensures alignment and manages expectations from the outset.
Too often, agents accept challenging listings without such provisions, then spend weeks or months imploring the seller to be realistic about the price. The fundamental problem here is a lack of a solid trust relationship established at the beginning. Without that foundation, the seller often refuses to accept any responsibility for the property’s failure to sell and instead blames the agent for not performing a “miracle.” They frequently reject expert advice and rebuff assertions that their listing received as much effective exposure as every other property on the MLS system. They refuse to accept the undeniable truth that the market doesn’t lie and that if no one is interested, the price is likely the issue. Instead, they desperately cling to the fantasy that “the right buyer with faraway eyes” has simply not yet discovered their listing.
The Cost of Misjudgment: Losing Out to Competitors
The painful reality often strikes when the listing finally expires. Only after being given the same, or even lower, market estimate by a competitor are these sellers finally convinced of the original agent’s advice. They then proceed to list with your competitor, often at the exact lower price you had initially recommended. To add insult to injury, shortly after your competitor’s “Sold” sign is installed, the property sells quickly! The surprise and frustration for the original agent are immense. You lost the listing, and all your time, effort, and expense were for nought. The other brokerage gets the credit for the sale, and in the minds of the neighbors who watched your sign fade in the sun, you were the one who failed. This scenario highlights the critical importance of setting the correct price from day one and establishing clear expectations with the seller.
Before accepting a listing, or even a re-list of a competitor’s expired property, ensure you can make an informed business decision. A powerful question to pose to your prospective new seller is: “Are you interested in selling, or just listing?” When they inevitably respond with a puzzled expression, take the opportunity to clearly and patiently explain the crucial difference. “Selling” implies a commitment to market realities, a willingness to price competitively, and a readiness to negotiate. “Listing” often means merely putting a sign up and hoping for an unrealistic outcome. This distinction sets the stage for a productive, reality-based relationship.
Strategic Pricing: Techniques for Different Market Conditions
In a robust seller’s market, a popular and highly effective strategy, as previously mentioned, is to deliberately encourage buyer competition. This can be achieved by slightly under-pricing the property and strategically delaying the presentation of offers for approximately a week. The critical ingredients for this “perfect storm” approach include a trusting seller, an expert and trustworthy agent, and a particularly desirable property situated in a hot market. This strategy often results in a hectic, revolving-door week of showings, but if executed correctly, you could find yourself presenting multiple, often escalating, offers to a very happy and potentially overwhelmed homeowner.
However, agents must exercise caution; without the precise conditions and expert execution, this strategy can backfire dramatically. If, for instance, the hotly anticipated perfect storm proves to be a washout, with only one buyer making an offer, it indicates a misjudgment of the market or property appeal. In such a scenario, the property could end up selling at a lower price than if it had been priced appropriately from the start. Alternatively, you might be forced to raise the list price, which can inadvertently discourage future buyer activity, as potential buyers may perceive the property as having been “stale” or previously overpriced.
The Appeal of Exclusive Listings
On the other hand, some sellers prefer to steer clear of an invasive “storm” of showings and multiple bids, opting instead for a calmer, more private sale. In such cases, an exclusive listing may be far more appropriate. For example, a fragile elderly homeowner may not be emotionally or physically able to handle being besieged by numerous showings and the pressures of a bidding war. Similarly, if you already have a pre-qualified prospect in mind, there may be no immediate need to share the listing with competitors, allowing for a more streamlined, private transaction.
It is imperative, of course, that your seller fully understands and explicitly agrees to the limited market exposure that an exclusive listing entails. While the agent’s fee might be slightly lower for the seller in some exclusive arrangements, you could inadvertently be disserving your client. By not exposing the property to the much larger marketplace through the MLS system, they could miss out on the chance for multiple bids, or even that one enthusiastic buyer with deep pockets who might be willing to pay a premium. A higher sale price achieved through broader exposure could easily make any small commission savings seem paltry in comparison to the potential loss of equity.
The Crucial First Impression: Maximizing Market Impact
At no other point during the entire listing term will you have a greater opportunity to make a significant impact in the marketplace than when your listing is first uploaded onto the MLS system and you hammer that “For Sale” sign into the lawn for the very first time. This initial period generates immense interest and activity. It is undeniably in the best interests of your seller—and ultimately your own—to exercise sound judgment and be exceptionally sensible when estimating fair market value and setting an asking price. As I’ve emphasized, these are two distinctively separate, yet interconnected, functions that require careful consideration.
This inaugural moment is the perfect time to strategize, clarify all expectations with your seller, and set realistic, achievable goals. Furthermore, it is also the smartest and most opportune time to secure a price reduction agreement in principle, if necessary. Addressing potential overpricing concerns upfront can prevent significant headaches down the line.
During the evaluation process, be unfailingly honest and candid with your sellers. Help them metaphorically “slip their feet into the cool, objective shoes of a prospective buyer.” For optimum results, the initial list price should be fairly close to the anticipated sale price, reflecting true market value. If your seller expresses unrealistically higher hopes from the beginning, they will inevitably be reluctant later to lower those expectations, because they will perceive any subsequent reduction as a “loss of equity” or a failure. Remember, you will not sell the property without buyers viewing it and making offers, so choose the right bait – a compelling, market-aligned price – to attract serious interest.
Avoiding the Price Reduction Predicament
After a prolonged period of little to no buyer activity, you certainly won’t enjoy the unenviable task of seeking a price reduction from a disgruntled and frustrated homeowner. This situation becomes even more challenging if that request for a reduction happens to serendipitously coincide with a bona fide offer from your own buyer client, who genuinely feels their offer terms are fair—and with whom you entirely agree. In this predicament, you may face a major challenge convincing your seller that the offer is realistic and acceptable. They might wrongly assume that your allegiance has shifted to your new buyer client, or even worse, that you selfishly want to earn a double commission. It becomes an incredibly tough sell, often fraught with mistrust. Pricing the property correctly in the first place would have undoubtedly been a far easier and more ethical path.
Always strive to be worthy of your clients’ trust and diligently fulfill all your marketing responsibilities as promised. However, if those diligent efforts ultimately prove fruitless, your seller must understand and accept that the market alone will be the decisive arbiter of fair market value. If they refuse to accept responsibility for their initial pricing decisions or disregard your professional price recommendations, they can only blame the market and themselves – not you. After all, as a skilled real estate agent, you are merely the interpreter of a market that is never wrong. They would be wise to accept the “realty reality” by setting a fair asking price upfront and thus move on with their lives and their future plans.
“Few delights can equal the presence of one whom we trust utterly.” – George MacDonald