I picked up a news bulletin about a recent study from HomeGain.com that asked sellers and buyers what they thought of each other’s idea of the value of a home, and what they thought about agent’s valuation, as reflected in the list price. I would love to link you to the study, but HomeGain does not seem to have it posted on their blog or web site.
Here are the basic findings of the study as reported in the news item:
- 63% of sellers believe that their agent’s recommended price is too low.
- 45% of sellers think their price should be 20% to 30% higher.
- 14% of sellers think their price should be at least 30% higher.
- 21% of buyers think that the homes they are considering are overpriced by 6% to 10%.
- 32% of buyers think that homes are 10% to 20% too high.
- 6% of buyers think that homes are more than 20% too high.
- Only 18% of buyers think that homes are priced fairly.
Granted, this study has been done during arguably the worst recession in modern history, at a time when home prices nationally have fallen significantly after the highest price inflation ever, so these attitudes are somewhat understandable.
However, the results of the study are not surprising if you consider human nature. Quality Service Certified found in their first few years of doing surveys of agent performance that the category of negotiation regularly turned up answers from clients that were not in sync with the answers to the other questions. In essence, clients nearly always thought that they should have gotten more money (sellers) or should have paid less (buyers), and blamed the agent’s negotiating performance, even though they were extremely satisfied with all other aspects of the agent’s work.
The reality is that right now, everyone needs to get a grip, and in the long term, clients need to listen to the professionals they engage to help them sell or buy. Good agents know their market, and are always honest with their clients. When I recommend pricing to sellers, I show them all the applicable market data, do a rigerous comparative solds analysis, review comparable and competing listings that recently failed to sell, and compare the subject house to the active competition to recommend the best competitive positioning. When I advise a buyer on a property they are interested in, I also do a rigerous comparative solds analysis to establish an estimated value range, review any factors that may work in their favor for negotiating purposes, and recommend an offering price which suits my client’s wishes as to how hard they want to negotiate.
One thing buyers needs to watch out for is the impact of a seriously low offer. Everybody knows that people get emotional about buying and selling homes, especially the sellers. To the vast majority of sellers, an obviously low offer is insulting. Even if you ultimately arrive at a purchase deal through negotiation, the sellers will likely be less than accomodating on subsequent repair negotiations and cleaning up as they move out.
In the current economic condition, depending on the local market, sellers need to get real about values if they truly want to sell. They need to understand that pricing too high simply causes you to sit on the market with virtually no showings and definitely no offers, other than perhaps those insulting lowball offers, and when you ultimately reduce the price to get right, you then open the door to hard negotiations. When buyers and their agents see a history of price reductions, they sense the ability to get an even better deal because they believe that the seller is now motivated and really needs to sell.
Pricing is always the most sensitive issue for everybody in the transaction, for obvious reasons. Whether you are buying or selling, always try to understand the position of the other party, and the agents, and just be as reasonable as possible. If you can’t afford the market value, then don’t buy (or sell).