Monday, January 01, 2007

Overpriced Listings

During a recent conversation with one of our clients, he asked “why do agents continue to take listings they know are overpriced?” I considered that a great question and worthy of comment.

There are several reasons why agents take “overpriced” listings. In default, with the simplest solution usually being the most correct, the agents may not actually know or believe the listing is overpriced. They may lack experience or expertise in a flat or declining market and not have the study habits or initiative to continually analyze the market conditions.

There are, however, some more complicated and sometimes intentional reasons for knowingly accepting a listing that is priced above what the market can bear; we are assuming, for this example, the seller is the driving force in the inflated price, not the agent.

Primarily, a listing is a venue for advertising and lead generation. Once an agent secures a listing, they advertise that home in any number of places- beginning with a sign in the lawn with their company or personal name and continuing through that agents choice of advertising media.

Experience shows that signage is among the very best sources for generating new leads, so an agent can even find some level of success with simply displaying yard signs and not spending any money on advertising. In traditional real estate, listings are generally considered the key to an agents success because of their capacity to generate new buyer leads.

Once a potential buyer calls on their listing, they now have an opportunity to convert them into a client and secure a buyer side sale. Some simple math shows if an agent takes an overpriced listing that does not sell, but converts 1 or more buyer calls into sales they are making a profit similar to or greater than the commission they would have earned on the sale of the listing. This is, of course, assuming they have refrained from spending large amounts on advertising.

There are some pitfalls in this system. First, it is unfair to the property owner as the agent is giving them an unfair expectation of selling as they are “overpriced.” Second, sellers expect advertising from the agent. If the agent is poor at converting buyer calls and securing buyer side sales, they will quickly deplete their capital by carrying undesirable listings and advertising expenses. Finally, agents rely heavily on referrals; unsold listings do not generate referrals.

The moral is, take a hard look at your price when listing. If you still feel it will sell for more than what the comps have sold for (which it most likely will not in the current market) and your agent is willing to list it without an agreement for price reduction, or a similar strategy, question why they would do that and also ask for the number of listings and sales they have had over the past 3-9 months. If the number of listings is high, but the sales are low- question that as well.

The bottom line is there are some phenomenal agents who are very adept at handling the current market, but there are also those who are not and for most Americans, selling a home is one of the biggest financial transactions they will encounter during their lifetime. It behooves them to research the process, the market, and the people they choose to represent them.

Article courtesy of Mike Ognek, Help-U-Sell Olde Dominion Real Estate.

For more information on listing your home, please contact:

Vito Boscaino
Owner / Realtor / MBA
Help-U-Sell North High Realty

office: 614.447.3050

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