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The Danger of Setting the Price to High

It’s time to sell your home, and you’ve done your due diligence. You have studied the local real estate market, and have determined a fair price range, now it’s time to choose a Realtor.

You meet with three agents who have prepared their own analysis of your property. Two of the Realtors have calculated prices that are in line with the local market, although slightly lower than the number you came up with. The third agent however has estimated a selling price that is considerably higher than you originally considered. That would be the agent to go with, right? Maybe not.

There’s a good chance that what you are seeing here is a tactic called “buying a listing.” Realtor #3 has no real expectation of your house selling at the higher price, but wants to get your business. From the seller’s perspective, this seems like a no-risk proposition. If the agent can’t sell your house at the higher rate, you can always drop the price.

There are a few problems with this assumption. First of all, the listing agent is usually not the person who is actually selling your home. It’s much more common that the listing agent will work with a number of local Realtors that actually present your property to potential buyers.

If the asking price is initially too high, those local agents will be reluctant to invest time and effort into showing the house. They know what the local market will bear, and if your price is too far out of line, it is going to be a tough sell, and it is going to take longer to sell.

Another factor to consider is human nature. If you go with a listing agent who has misrepresented the value of your house, chances are this isn’t an isolated incident. If they have a history of questionable ethics, it’s likely that other Realtors have an unfavorable opinion of the agent, and will be reluctant to work with them.

Even worse, this slow down effect can be compounded. You will see the most concentrated response activity from the initial listing. The longer your property is on the market, the more you get into diminishing returns in the level of buyer interest. The act of lowering the price doesn’t mean that the clock starts over. In fact, this can make your house less attractive. The buyer sees a house that has been on the market for a longer period of time, and lowering the price can indicate desperation on the part of the seller.

Even if you do manage to find a buyer at the higher price, there can still be problems closing the deal. The buyer will need to secure a mortgage, and if the property they want is priced higher than the comparative value, it’s going to be very difficult to obtain a mortgage, especially in a market already glutted with ‘underwater’ properties (that is, properties in which the amount owed is greater than the appraised value).

When it’s time to list your house, pay attention to the agents who are telling you what you need to hear, versus the ones who tell you what you want to hear. Not only could you end up saving months on the sale process, but you could end up getting much closer to your original asking price.

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