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Column: Pricing Your House to Sell or Pricing for Your Ego

By Mark Pruner

Every week in Greenwich homeowners try to get their listing agents to price their house too high. The common seller’s wisdom, which certainly seems rational, is that if I price my house too low I will leave money on the table that otherwise I will be able to capture by pricing my house above fair market value and coming down. There is probably no better way to leave a significant amount of money on the table then to follow this pricing strategy.

You would think that the ideal way to price a house is slightly over less price and then negotiate with the buyer and ideally settle near list price or slightly below it. In most markets this is the wrong thing strategy and is definitely the wrong strategy in a hot market.

But first, let’s talk about the normal market where there is a balance between inventory and buyers and sellers are confronted with a fair number of competitively priced listings online. In that situation, the problem with pricing your listing high is that vastly fewer number of people will come to see your slightly overpriced listing. Your house may feature all of the new items that today’s buyers want but it is priced too high to attract a lot of buyers, particularly buyers that are willing to make good offers.

What to often owners like to do is to seek to seek real estate advice that will validate their belief that they should listen their property as high as high as possible, so that they can generate offers that are as high as possible. In Greenwich real estate you can always find an agent who can tell you that not only is your preferred price the perfect price, but you might even want to consider a higher list price. Do not listen to these agents, they want your listing, often because they haven’t sold a lot of listings recently.

The problem with this formula and these agent with their siren song is that very few buyers play the game that way. Buyers don’t gravitate to listings that they think are priced to high. For buyer’s the actual price of this listing is only the starting point, they need to factor in the cost to fix up the house, the cost to renovate it to their taste and very importantly, for the two income families the opportunity cost to take lots of time off from their demanding job to meet with contractors, suppliers and repairmen.

Getting that super-aggressive seller, represented by the out of town agent who does not know this market to make an over list price bid is great, but it rarely lasts, if that is your only bid. It is much better to have multiple higher priced bids from buyers who have the ability to close at their offer price.

We don’t want the highest price that a buyer is willing to pay, but the most buyers that are willing to make an offer on the house. What multiple offers tell you is that you have determined what today’s fair market value is for your house. This doesn’t mean that we want buyers who can only afford to offer low ball offers. That doesn’t tell you FMV is. Surprisingly, or if you have a better understanding of human nature, not surprisingly, those people who can only afford to make a low-ball bid have already filtered themselves out and don’t generally make offers. Most buyers don’t want to be laughed at. They don’t want to offer something that is so low that the seller rejects it out of hand. Who wants to be told that their ability to purchase a house in Greenwich s is so inadequate that they really shouldn’t have wasted their time making an offer.

This applies not only to those who are really severely limited to what they can offer, but also to people who are able to make an offer, just not the highest offer. It is only human nature not to bid, if emotionally they think they don’t have an adequate offer. People who can only make an inadequate offer, feel that they would be personally inadequate and hence won’t bid. With over-priced listings, you will see vastly fewer offers.

One on of the listing agent’s prime jobs in a situation where multiple buyers are considering making an offer is to get them to make an offer. Having 6 offers over list price is better than to have one offer well over list price and only one other offer at list price. In this situation, the single offer that is well over list price is likely to withdraw that offer or to try to start renegotiating their offer as soon as they realize they are a party of one. This may not be a lower price, but now they want a mortgage contingency, or an inspection contingency or they need additional time to further investigate the issues that their inspection turned up.

If you are a seller, you want multiple non-contingent offers that are close to the higher accepted offer. When the best offer starts to get cold feet, the counter is not to further negotiate with the highest offer, but to dump them for the next best offer that has all their ducks in a row. If the “best” offeror knows that any waffling will result in their losing their dream house in Greenwich, they will stick to the offer. If it turns out that that the highest offer wants to remake the deal in their favor with lots of contingencies, so that while their offer is the highest offer, it is not the best offer, so the seller should move one.

What you want are 3 – 6 offers over list that are closely grouped. But, how do you get that? You get that by putting the list price low enough to generate multiple offers that are close together and who are willing to waive the mortgage contingency, whether they need a mortgage or not.

You can’t get this result, if you price the house at an “aspirational” price, then no one is likely to make an offer or might only get one offer. In the situation where you only have one offer, you have to carefully nurture that offer to keep alive throughout the bidding process. If you can only get one offer, you have to make sure that you get this offer to contract.
The above multiple offer strategy works when the market is hot. If the market is cooling, or your house needs lots of work, or if you have multiple closely priced competitor in that neighborhood, you can still sell you’re your house at a good price, but you are rolling the dice. Instead, of having multiple bidders to push the price up, you have a single buyer, or even a couple of buyers bidding the price down. They are in control, and you are not.

Right now, we have lots of buyers that would like to buy compared to the very limited number of listings that we have. However, those buyers are not nearly as desperate as they were at this time last year. They want a house in move-in condition, in a popular neighborhood, in the right school district. If your house needs lots of work, is in a neighborhood that is seeing dropping demand and is only for buyers who don’t have kids, then you have to be in nurturing mode.

When you get an offer make sure you work with the buyer to get it to contract. The hardest thing to do is to go forward when you want to tell that arrogant buyer to stuff it. This is not personal, even though it is about the home where you raised your family. This is a business transaction and you should treat it that way, divorce yourself from the emotions and work with your agent to get to a signed contract.

You owe it to your family to get the best price, not the best short term emotional feeling when you tell the buyer to take a hike. On the flip side, if you have a good back-up offer, because you price your house right to begin with, you can tell that buyer to put up or shut up or you’re going to your backup offer.
Pricing is everything in this market.

Mark Pruner is a Realtor with Compass. He can be reached at 203-817-2871 or mark.pruner@compass.com

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