This week I spoke with two potential 2022 sellers. Both believed their homes were worth at least more than 10% than what I would consider to be the market values. I will typically represent a seller if they are within 10% of my comparative market analysis. Anything more and it is very likely that they will not have success selling the home with their first Realtor. In those situations, it’s much better to be the second or third Realtor. It can take months for sellers to digest the feedback from showings, and several Realtors, to bring their feet and expectations back to earth.
My recent experiences are making me wonder if there will be a lot of sellers in 2022 who will price their homes to sit, and not sell. It’s much better to start at the market value or a little lower, and attract buyers who compete with overbids, than it is to price in the hopes of attracting one buyer who will offer more than anyone else in the absence of competition. If a house is sitting with no offers, it’s more likely to attract offers under the asking price. The longer it sits, the lower the buyers’ expectation of value. That being said, if a house is turn-key and recently updated, a seller has the best chance of making the most money on the sale. It’s much easier to attract a reasonable offer on those homes at higher prices than it is to get a good offer on a house that needs work and is listed at a high price.
One of the sellers, who I believe will be attempting to sell without representation of a Realtor, thinks his house is worth $100,000 more than my valuation, exactly 10% higher. He doesn’t want to do anything to the house. The tile flooring is crumbling, and the carpets are stained. The walls are begging to be painted. The kitchen on its best days is tired and the bathrooms are inhospitable. Believe it or not, in an off-market sale I just might be able to attract a buyer for something like that at an elevated price.
The bar for presenting homes off market is much lower than homes on the multiple listing service. Buyers don’t expect everything to be perfect when a home isn’t on the market. When there is little inventory, like we are experiencing at the end of 2021, buyers and their agents are looking for any edge on the competition. Buying something off market gives them that edge. One of the best things about showing a house off market is that you can test the waters at higher prices. If nobody bites it’s easy enough to lower the price when it comes time to put the house on the market. That is to say, it’s easy enough if the seller is open to lowering the price.
Most Realtors don’t like to admit this, but sometimes the prices we recommend can be wrong. That’s why I prefer to give myself that 10% cushion. Any more than that and it seems like too big of a stretch. When I was a younger Realtor, I was more inclined to take listings at what my gut told me were unrealistic prices. Predictably, some of those homes I didn’t sell. The advice I was getting at the time was to take listings at any price, then if they didn’t sell suggest a price reduction strategy. I’ve learned from personal experience that pricing too high can be a painful way to sell home. It’s just so much better, and less stressful, to present a seller with offers that are over their asking price rather than under.
Pricing shouldn’t be too much of an issue in 2022 if inventory stays low. The biggest issue for overpriced homes is when inventory accumulates and buyers have other/better options at lower prices. But just because inventory is low doesn’t mean a seller will be able to get whatever they want for their house. I spoke with someone earlier this year who purchased their multi-million dollar home in Southern Marin and realized after they moved in that they didn’t like the house. They wanted to sell it two months later for several hundreds of thousands of dollars more than they purchased it, without doing a thing to the house! To make matters more challenging, it looked like they may have overpaid for the house when they bought it.
That didn’t seem like a great situation, so I let it pass. Another Realtor listed the property and was trying to sell it off the market at the elevated price. It doesn’t look like they’ve attracted any acceptable offers yet. Maybe they’ll sell it this spring? I hope so. There’s always a possibility that ‘one’ buyer will be out there who will be willing to pay the seller’s price. For their current Realtor's sake, I just hope the seller’s expectation of the price doesn’t go any higher between now and then. If that’s the case, it just might be better to be the third or even fourth Realtor.