Silly as it may sound, lots of real estate agents -- even in a buyer's market where little is selling -- take overpriced listings. It happens every day. These agents who continually write ridiculously priced listings gain questionable reputations among their peers.
So, you might ask, "Hey, who cares?" but an agent's reputation is important, especially in tight-knit communities like ours. When buyers and sellers sign a purchase agreement their respective agents enter into a 60- to 120-day relationship; mutual trust and respect for each other and cooperation is crucial in helping insure the transaction succeeds in the end. So why do agents sabotage themselves? Or do they?
Sometimes It's a Deliberate Lie. As a seller interviews prospective agents, often the estimate of value creeps upward. Maybe the first agent knows there will be two other agents competing for the listing, so the first agent names an unrealistically high figure. The second agent, upon hearing the first agent's price, beats it. The third agent comes in higher yet. Or, they simply suggest a higher price than is realistic knowing they will be competing. It's called "buying the listing" in the trade.
A seller who chooses an agent based on which estimate is highest is the ultimate loser.
Yet almost every seller operates in this manner. It's a shame because so few agents take the time or even have the skill to educate sellers that other factors such as marketing plans and the agent's negotiation abilities are far more important than the list price. The comps speak loudly and ultimately the market place establishes value, not the agents. Buyers have choices, plenty of them and they are not about to be fooled in to paying too high a price. In fact in this market, they are looking for and expecting downright bargains
Sometimes the Seller has Unreasonable Expectations.
This still doesn't excuse the agent from explaining how appraisers determine value. The following happened in California but is repeated all around the country. A home came on the market on a storybook street in a desirable area of Sacrmento, but it was priced $100,000 too high. When asked why, the agent replied, "I know it's overpriced, but I would have lost the listing to somebody else if I didn't agree to that price." Turns out a home two doors down sold for a high figure, but that home had been meticulously maintained, and it boasted a newly remodeled kitchen with top-of-the-line appliances. By comparison, this home was a fixer, but the seller insisted he could get the same price as his neighbor.
BE AWARE THAT IT DOESN'T MATTER TO SOME REAL ESTATE AGENTS IF YOUR OVERPRICED LISTING EVER SELLS
Free Advertising for the Agent
Every "For Sale" sign advertises the agent's company and the agent. Many signs contain the agent's Web site and cell phone number. Some even sport a large color photograph of the real estate agent.
Think of it like a giant billboard for the agent.
If the home is located on a major thoroughfare, all the better. Probably dozens, maybe even hundreds of drivers pass the sign each day and will see that agent's name. And after the sign post is in the ground, it's not costing that agent anything to leave it there.
Agents Find Buyers through Listings
Sign Calls. If a buyer wants to find out the price of a home, typically they will call the phone number and ask. Agents who are on the ball will try to recruit that buyer to work with them, providing the buyer is not already working with another agent.
Open Houses Moreover, agents can hold an open house and find buyers that way as well. If the buyer is not interested in the home the agent is then free to show the buyer other homes.
An agent with an overpriced listing often won't put the address in the paper but will list the details along with the price. That way, buyers who can afford to pay that amount will call to inquire. Internet and web sites
Perhaps the best form or advertising today is the internet. Choose the agent with the very best web site and by that we mean one that is highly useful to the visitor, one that offers all inventory in the market, one that can do videos, virtual tours or slideshows is best. Capturing visitors is one thing, however keeping them on the site and converting them to actual buyers for your home is the most important. Make sure your agent is truly up to date and internet savvy.
Real Estate Agents Who List Over Market Value Hope for a Price Reduction
Even if an agent knows she is taking an overpriced listing, she might be telling herself that when the home doesn't sell within a few weeks, she can persuade the seller to lower the price and then earn a commission when it sells. So she justifies her actions and accepts the listing. The problem with this approach is that studies show that interest in a home typically wanes after a few weeks, so there are fewer buyers for that home when the price falls. Buyers also think there is something wrong with a home that doesn't sell right away or they worry the seller dropped the price because a major defect was discovered. Price reductions hurt. They hurt the seller, and they often make a buyer wonder how much lower the price could drop. So, a buyer will often offer even less after a price reduction.
Real Estate Agents will offer low commission rates to bag a listing
The second technique some agents use to get listings is to offer lower commissions than the competitors. You might think, "Wow, this is great, lower commission means higher bottom line." Not so fast. Better ask lots of other questions too, such as how and where do they advertise, take a look at their web site, their office space and staff, their reputation, their skills and track record. Usually cut rate brokerages also get cut rate prices for their listings and the sellers that fell for the low commission wind up with the short end of the stick at the closing table. If an agent is so willing to work for a low rate, they are also likely the type to give in much too quickly in the negotiating process so the cheap rate they charge ends up being very expensive relative to the agent with the higher fee to begin with. Another case of "you get what you pay for".
Conclusion: Choose your agent based on honesty, ethics, experience, competence and marketing, skills. Don't chase after those tossing around pie-in-the-sky numbers or low commission rates. Those are classic and costly mistakes.