Real Estate Pricing Strategy Question
April 30, 2010 3:41 PM   Subscribe

Real Estate Pricing Strategy Question. So we're looking to sell our condo in San Francisco. After meeting with a broker, he said that we should ask $575k - $625k. He showed us numerous "comps" that seem to support his suggested price. But ours does have some unique features that make me think that it could go for as much as $650k. But I'm not a real estate professional. Considering that a broker, even one we trust (he came highly recommended) is motivated to make the sale quicker, does it stand to reason that based on his range, a higher price is reasonable, even if it means that it takes longer to sell (and the broker has to work harder)?
posted by ssimon82 to Work & Money (29 answers total) 1 user marked this as a favorite
 
Everyone thinks their house should get sold for a higher price. EVERYONE. It's like the #1 mistake when people try to sell their homes. Besides, there are strategic reasons to list lower in a hot market, specifically to encourage lots of prospects and hope for multiple bids to drive up the final sale price. What was the sale price/list price ratio on the comps?
posted by GuyZero at 3:46 PM on April 30, 2010 [3 favorites]


Also, there's no advantage to drawing out the time it takes to sell a house. As a house stays on the market for longer buyers begin to assume there are problems and tend to discount their offers, regardless of whether there's anything wrong with the house. And a seller's agent tends to put in a fixed amount of effort into a house since a lot of the tours will be given by buyer's agents.
posted by GuyZero at 3:50 PM on April 30, 2010


Your intuition about brokers' incentives is borne out by the empirical evidence, according to the Freakonomics authors.
posted by ewiar at 3:51 PM on April 30, 2010 [1 favorite]


It may very well go for $650K - does anyone get list price in SF? My experience is that everyone offers and pays more than the listing price, that's just the way things are here. If your house is worth $650K, I assure you, you'll get it. The market is still strong enough here that there are plenty of bidders for desirable properties. And those who price just below their "real" value tend to get bid up as everyone leaps at the "deal."
posted by otherwordlyglow at 3:54 PM on April 30, 2010 [1 favorite]


In Freakonomics the authors conclude (if I remember correctly) that agents do have as much incentive as you do to sell the home for as high a price as possible.
posted by oddman at 3:57 PM on April 30, 2010


Interview at least three real estate agents and get comps. Don't rely on the first that you talk to. Ask them to present their marketing plan.

Keep in mind that agents will "bid" against each other to get an exclusive contract. The one that gives you the highest estimate in order to get your contract might then later ask you to reduce the price to make the sale.
posted by JackFlash at 4:00 PM on April 30, 2010


At the risk of derailling this thread, I can assure you that Steven Levitt found that agents do not have as much incentive as you to sell the home for as high a price as possible. The difference in the commission for a $625k sale and a $650k sale is pretty small, and doesn't justify the extra time, work, expense, etc. ($750 on a split commission, to be exact).

That said, when we sold our house a few years ago, we had a lot of reasons why we thought ours was better than many of the comps. The house sold for what the agent said it would. If you trust the agent, I would go with her judgment on price.
posted by jeoc at 4:03 PM on April 30, 2010


I don't have any real advice except that I'm under the impression that a lot of SF mid-low end (4-800K, say) properties are stickered too high. You should definitely be reading Socketsite.
posted by rhizome at 4:03 PM on April 30, 2010


The market is still pretty strong here (at least compared to the rest of the country), but almost of the comps he showed us sold at, or slightly below the asking price. It doesn't seem like people are making offers above asking price like they did a few years ago.
posted by ssimon82 at 4:04 PM on April 30, 2010


Your house is worth what someone else will pay for it. Will someone pay $650K? Who knows? If I were you*, I would list it at $625K and see if someone bids over.

*and I am not you, nor am I a realtor.
posted by cooker girl at 4:15 PM on April 30, 2010 [1 favorite]


Get a couple more estimates from other brokers.

Or an alternative, if you're committed to this broker: our favorite real estate agent sold my sister's house, and before the house was listed, she brought several of her colleagues through to check her own price. (I know it's common to do this the day the house is listed, to get fellow brokers excited about the property, but she did it before the house was listed, too.) All of the recommendations were within $20,000 of one another, and the final sale price was right smack in the middle of that range, so you might think about asking this broker to do that.
posted by palliser at 4:16 PM on April 30, 2010


In Freakonomics the authors conclude (if I remember correctly) that agents do have as much incentive as you do to sell the home for as high a price as possible.

This is exactly wrong. Read the link I posted above.
posted by ewiar at 4:16 PM on April 30, 2010 [1 favorite]


The broker is already planning to do a "Pricing Party" with his colleagues to get an idea of where the others would set the price. That doesn't really do anything to eliminate a bias that brokers would have to set the price low.
posted by ssimon82 at 4:19 PM on April 30, 2010


Let me reiterate: homeowners are more biased to overvalue their houses than brokers are to undervalue them.
posted by GuyZero at 4:27 PM on April 30, 2010 [1 favorite]


It never pays to be the most expensive in a group of comparable properties.
posted by maxwelton at 4:38 PM on April 30, 2010 [1 favorite]


To expand on GuyZero's point, generally speaking potential buyers are willing to pay a small smidge (if anything) for things like luxury finishes when comparing one property to another--they're considered throw-ins, generally speaking. They are willing to pay for floor space/rooms, parking (if that's a neighborhood issue) and location.

But comparing two 3/2 1800 sq. ft. places where the layout, rooms, location and such are all a wash, but one has hardwood and granite and the other has carpet and formica? They might pay a few K for the "nicer" one but not 50K.

So be sure you're supporting your higher value with the stuff people are willing to pay for versus what they aren't.

(In my non-professional, but way-too-extensive-personal, experience.)
posted by maxwelton at 4:44 PM on April 30, 2010


In the East Bay everything is getting bid up. From all my friends' stories, nobody who bids offering seems to be getting their offers accepted. One friend is now only looking at houses with listing prices at least $30k below her maximum loan amount.
posted by slidell at 4:54 PM on April 30, 2010


Also on the issue of the comps going for below ask: the real estate market is very seasonal and the "real estate season" really only starts on Mother's Day so any comps from the last 3-4 months will be lower in terms of ask/sell versus what you'll see over the next few months.
posted by GuyZero at 4:58 PM on April 30, 2010


personally if you don't care how long it sits on the market I'd list it at $650 and see what happens. Give yourself a set amount of time to get an offer (like 6 weeks) if nothing then go down.

As a buyer I don't take much interest in how long something has been on the market unless its like a year.
posted by bitdamaged at 5:00 PM on April 30, 2010


ssimon82 wrote: "That doesn't really do anything to eliminate a bias that brokers would have to set the price low."

Agents have an incentive to keep prices high. It makes the comps higher, which makes the selling price of future homes higher, which keeps their income higher. Sure, they don't have a huge incentive to get the absolute highest price on your particular house, but it does help them and their colleagues out in the future if they don't lowball.

I think you're being paranoid, as most homeowners are. (understandably! it's not a lot of money to the real estate agent, but it's a lot of money to you)

And yes, what other people are saying about houses that have been on the market a long time being harder to sell is true. You will still eventually find the right buyer, but it becomes harder and harder with each passing day. Very few people have the stones or are foolish enough to think that they know better than all the other people who looked at it over the last [long time].
posted by wierdo at 5:07 PM on April 30, 2010


I agree with maxwelton : "generally speaking potential buyers are willing to pay a small smidge (if anything) for things like luxury finishes when comparing one property to another--they're considered throw-ins, generally speaking. They are willing to pay for floor space/rooms, parking (if that's a neighborhood issue) and location."

You mention "unique features", but if we're mostly talking cosmetic features, you may very well likely place a larger value on it than a buyer - especially if it's something you did personally or had done.

And I personally do not think letting it just sit on the market is a good plan.....not only does it cost money in mortgage or property taxes (if there is any), insurance, utility bills, etc, but there certainly can be a stigma attached to properties that have been sitting there. One of the houses we bought was a steal - well below market value. We were reluctant to buy it b/c we figured *something* had to be wrong. We lived there five years and nothing was wrong. But it had been on the market for many months, and the previous owners initially over-priced it. Now I'll admit our area of the country is way different than SF, but I believe it is true that we generally think things are valued more than the market does.

Short answer: if you are pricing at an amount higher per sq ft than the rest of your neighbors, will the different be fairly obvious (and important) to potential buyers?
posted by texas_blissful at 5:54 PM on April 30, 2010


Talk to more than one agent if you want to confirm the price. If you house is worth more than it is listed for, it will sell for more than it is listed for. From my understanding, though the market here in the Bay Area has held up better than some places, it is still no where near what it was like in the housing boom. Also, as a general rule...houses do better than condos, so there is that.

When you talk to multiple Realtors, do *NOT* make the mistake of thinking that just because someone gives you a higher price, they know what they are talking about. If a house is priced too high, it will sit, and I have seen properties totally miss the market and end up selling for less than the other (more moderate) Realtors advised. Don't be that kind of chump. Further, there is absolutely a stigma on properties that just sit there without selling.

Disclaimer: I am not a Realtor. (anymore.)
posted by Edubya at 6:54 PM on April 30, 2010


there is a missing "not" in my first post. It should read "agents do not have"
posted by oddman at 7:40 PM on April 30, 2010


Agents have an incentive to keep prices high. It makes the comps higher, which makes the selling price of future homes higher, which keeps their income higher. Sure, they don't have a huge incentive to get the absolute highest price on your particular house, but it does help them and their colleagues out in the future if they don't lowball.

This is simply not borne out by the evidence.

There's nothing saying you have to pay a flat percentage on your sale. You could try to align your realtor's incentive with yours by offering a smaller percentage of the first 550-600k and a larger percentage of anything over, making 600-625k a break-even point and anything over that a substantial bonus..
posted by the christopher hundreds at 7:48 PM on April 30, 2010


That doesn't really do anything to eliminate a bias that brokers would have to set the price low.

The Freakonomics authors described a very specific self-interest bias: when you hold out for a better offer, the selling agent gets very little money for a lot of extra work, whereas the owner gets a lot more money. The other brokers at the Pricing Party have no pecuniary interest in your property's sale price or time on the market, since they don't partake in the commission, so I do think that self-interest bias is eliminated. I don't see their motive for low-balling -- a professional courtesy to your broker?

I think the only way to really follow the results of the Freakonomics study is to sell it yourself, since that's what the authors were comparing: broker-assisted sales to sales by owner.
posted by palliser at 7:52 PM on April 30, 2010


In the East Bay everything is getting bid up. From all my friends' stories, nobody who bids offering seems to be getting their offers accepted.

I have plenty of evidence to the contrary, having watched this market like a hawk for several years. One thing that happens is that if a house is priced too high it won't get offers, and it sits for a while and then is quietly taken off the market, then put back on at a lower price under a different MLS number. Rinse and repeat. When the house finally reaches a reasonable price it might get bid up a bit, and the agent get to claim that sell prices are x% over asking prices. But they don't mention that the asking prices have had to be ratcheted down several times to make the sales.
posted by tula at 10:48 PM on April 30, 2010


What exactly are your unique features that might add $25K to $75K to the selling price?

The only features I can think of in SF that do that kind of thing are:

-parking
-view

There's something called the "endowment effect" where people believe that their property is worth more than others do. *Everyone* thinks their home is worth more.
posted by ambrosia at 11:26 PM on April 30, 2010


I don't know if this will apply in your area as much as it does in mine, but you may also want to consider how bank(s) will appraise your property. Banks are FAR more conservative in their appraisals now than they were a few years ago, and have tightened the restrictions so that appraisals are closer to being "blind" (i.e. not related to what buyers are willing to pay).

With a couple partners, I recently sold four condos (a 100-yr old four-unit building) in NYC. The buyers were very excited about the great characteristics of the properties--hardwood floors, granite, stainless, huge square footage (for NYC)--all that. Banks couldn't have cared less about the charm. Even our realtor was pissed at how low some of the appraisals came in (substantially lower than what buyers had been pre-approved for and willing to pay).

So this was the biggest problem we ran into--buyers getting scared by low appraisals, in an uncertain market. We negotiated it all out, but the process was ridiculously extended as a result of all that, and we ended up with lower sell prices than we and the buyers had originally agreed upon.

You might want to get an independent appraisal of your place, if this could turn into an issue for you. Of course it wouldn't be a problem at all with a buyer with lots of cash, willing potentially to pay over appraised value. Good luck!
posted by torticat at 11:57 AM on May 1, 2010


you may appreciate those "unique features" an extra $25k worth (and you might even be right!), but apparently they did not make an impression on your broker. Assume that they won't make an impression on potential buyers, either.
posted by Chris4d at 9:19 AM on May 3, 2010


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