The new thinking behind setting your home's list price.
If you've read my previous articles on the importance of getting the right list price, you're undoubtedly thinking, "John, I'm convinced. I want a list price precisely calibrated to sell my home for top dollar. Just tell me how I can do that."
That's a challenge, even for the pros. At best, list price is an expert's educated guess as to where that moving target, sales prices, will alight in a week or a month. At worst, list price is merely an exercise of a seller's First Amendment right to Free Speech and Wishful Thinking.
That's why sellers don't usually take their list price to the bank. The uniqueness of each house, and the relatively small number of real buyers for it, makes it tough to precisely predict a home's sales price. But list price is still an extremely important marketing tool, and it's essential that sellers understand the new thinking behind it.
List price is—and always has been—just a starting point. The difference today is how buyer and seller get from that starting point, and where they end up.
The leisurely one-on-one haggling of the bazaar has been replaced by the fast-paced action of the auction.
Back in the day, you sold your house like you'd sell your car. List price was your guidance to buyers: "I want X for my house and not a penny less. Well, maybe I'd take a little less." You padded your list price because you knew that buyers would try to bargain you down. That was part of the ritual. Everyone expected it.
Back then you dealt with one buyer at a time, and heard their offer whenever they wanted to present it. Full price offer? Great! But probably you ended up taking less than list price. Then you and the buyer solemnly shook hands, each secretly congratulating themselves on the great deal they'd just hammered out.
That strategy won't work these days because it doesn't match the realities of the current market. Immigration, rising wealth and low interest rates have created waves of buyers that overwhelm our limited supply of homes.
We have plenty of willing buyers, and while they may not like it, they expect to compete for a home priced for multiple offers. In fact, these days buyers need the stimulus of a door-buster price. I can't remember the number of times I've seen a home worth, say, $1.5M come on the market at $1.5M and just sit. The starting gun hadn't gone off and buyers were still crouched, still waiting to explode from the blocks. But reduce the list price from $1.5M to $1.395M and watch multiple buyers bid the sales price above $1.5M.
What's behind this? Psychology. Buyers are price-sensitive. They need to see your house as a good value. And no one—not sellers, not even agents—knows value better than real buyers. Buyers ultimately set market prices because they are the market.
Trying to "guide" real buyers with an inflated list price is like trying to direct rush hour traffic on Bayshore Freeway. You'll just get in the way and get hurt. But stand back and let the auction mentality work, and you'll get full market value for your home.
Attractive pricing means a list price at the low end of the anticipated sales price range. Sellers often have two concerns about this strategy. First, they ask, what protects them from a buyer who comes in the first day their home is on the market and scoops it up at that low list price? That's where the concept of the "offer date" comes in.
The offer date is very much like an auction date. Your agent tells buyers and their agents that you'll hear offers on a fixed date, only after your home has been properly exposed to the market. Typically that's at least a week, including one week-end of open homes and a special open home for agents called "broker's tour". During that week-plus every potential buyer active in the market will have the chance to see your home, review your disclosures and decide whether to make an offer. No one buyer can swoop in early and buy your home for less than you think it's worth.
The auction process has become so entrenched here that the alternative to an "offer date", hearing offers "as they come", is now seen by agents and buyers as virtually an admission that the seller and her agent know they've overpriced the home and are willing entertain an offer anytime anyone is foolish enough to make one.
The other concern sellers often have when encouraged to price their home attractively is that buyers won't "know" enough to compete. Folks, this technique would never have gotten as popular as it has in this area if buyers needed to be instructed on how to compete. Competition is the natural reaction of buyers to a well-priced, well-presented home. And a lifetime of successfully competing is, I suspect, the only way buyers in our marketplace can afford our sky-high home prices.
At this point you may be wondering if "the new thinking behind setting your home's list price" isn't just agent code for "cynically manipulating buyers". It does appear that way to the more naive buyers. But in fact, attractive pricing is an essential ingredient in the auction process, which in turn is just an organic market response to the overheated conditions we've had here for most of the last decade, which in turn is just an organic market response to too many buyers competing for too few homes. Believe it or not, it's a matter of fairness, not just to sellers, but to buyers as well. The way homes are sold in this area benefits everyone (except perhaps buyers' agents). If it wasn't—if it was just cynical manipulation—then the new thinking would never have been accepted by all the market's participants, hung around for as long as it has and become as pervasive as it has. As we've seen several times over the past ten years, buyers walk when they don't like something about the market. Multiple offers are still very much a part of many local markets, which means that real buyers aren't walking.
Still have a hard time believing that the auction process is fair to everyone? Then consider this. It protects the interests of both sellers and buyers, ensuring not only that sellers get the most for their homes—and every buyer or her estate will some day be a seller—but also ensuring that buyers get a fair crack at the homes they want. Think about the alternative. How else would sellers and their agents handle the traffic jam of buyers that invariably stacks up around the best homes in this area? Hold a lottery? Take bribes? Any home-selling method other than the auction process would in effect create a black market for the best homes, or for homes in the best school districts, or for homes in sought-after neighborhoods.
Because if sellers accepted offers as they came, most homes here would sell the first day they hit the market, or even before they hit the market. The result? Either real estate would cease to be the transparent market it is now and turn into an insider's game. Or buyers would have to be on constant alert, disrupting their lives even more than they now do, ready to jump on a home at a moment's notice, with barely enough time to react, let alone think. And what about the buyer who shows up frantically waving a home-run offer five minutes after a lesser offer is accepted?
Will the auction process work in every market? I'm not sure. Both the highest and lowest ends of our market seem less promising candidates. The pool of potential buyers for ultra-top end properties may not be large enough. And I've worked in local sub-markets where no one seemed to notice a listing until it had "seasoned" for a month or so. Bottom line: the auction process requires decisive, aggressive buyers and lots of them.
And that's just what we've had in most local markets.
So sellers, price your home in the same range as other recent comparable sales. Choose a list price at the low end of the range, but one you can live with in case it's the best offer you get. Real buyers are willing to compete, but they're not willing to play games. Set an offer date and watch as your agent beats the bushes for buyers.
Maybe you'll get multiple offers and maybe you won't, but you'll certainly get top dollar for your home.