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Buying the Listing. Conflict of Interest?

woman with for sale sign on home

Berkshires Real Estate Market Value Opinions can often reflect serious Conflicts of Interest

Sellers of real estate tend to seek the advice of one or more Realtors ® to provide a market value opinion upon which to base a listing price.  Home valuation advice from Realtors® can be fraught with conflict of interest. The Realtor® is strongly motivated to get the seller's signature on the listing (collecting a fee when and if the property sells) and the seller can be easily convinced that their home is worth more than actual current market value of similar homes. 

One of the most common problems seen in the real estate trade is "buying the listing". What this means is that the agent that suggests the highest list price to a seller typically walks away with the listing. Once the Realtor® has the contract signed, the Realtor® then begins to work the price down to the point at which the property will sell.

"Buying the listing" occurs so often that every agency and Broker has a story to tell.  Our agency recently had firsthand experience with such a story, which involved another local Realtor® and seller.  This particular seller had asked several agents to provide them with a market value estimate for the home.   After doing a comparative analysis of the local Berkshire Market and previously sold homes similar to the seller's the Harsch Associates agent had suggested its selling price would be approximately $320,000.

 A competing agent priced it substantially higher and obtained the listing at a starting price of $495,000. This seller became another unwitting victim of "buying the listing". Both agents are very active in the community.   The difference in this transaction was the vanity pricing which netted a new listing for the agent who gave the highest valuation to the seller.

Once listed there followed a series of price adjustments over the course of the next 10 months.  The starting price of $495,000 reduced to $439,000 and then dropped again to $399,000, and finally down then down to $349,000.  At which point a buyer was found and the home was sold after 11 months at $316,800. 

Was a conflict of interest readily evident?  Was harm done related to the conflict of interest?  Yes it was.   Placing a time value on money reveals that at 1.5% carrying cost monthly for an unsold home and the additional 10 months on the market cost the seller $47,520.  That is if we value the home at the sale value of $316,800.  In fact, in this seller's case, time was important.  The seller wanted a rapid sale for undisclosed reasons.   It is reasonable to argue that the seller lost on this sale related to the vanity or "buying the listing" price given by the agent who obtained the seller's listing. 

In a recent article by Prudential Real Estate, the author concluded that an unsold home costs 1.5% of its value, per month to own. This includes all costs such as debt service (or the value of money), upkeep, insurance, taxes, etc.  This seller lost an extra eight months opportunity to sell because his house was overpriced at the outset.  

Overpricing cost the seller time and money because when homebuyers search for a Berkshire home, they tend to search within a selected price range.  Whether it is in Williamstown or Stockbridge, Lenox or Great Barrington pricing your home above what it is actually worth in the current Berkshires market means that your home will never appear in a net search result unless the buyer is willing to spend above the market value.  In this buyer's market, the willingness to spend above value is very unlikely. 

Beware of an agent who suggests a price that far exceeds what another agent has quoted to you. 

Get and use a Berkshire County bank approved licensed appraiser and appraisal to utilize as your definitive guide to the loan value of your property.   Look at the local tax assessor's valuation of your property.  Consider seriously selecting the agent whose opinion is closest to that of the appraiser and within a reasonable dollar number of the assessor's valuation.    That Realtor® is more attuned to the market and more likely to sell your home in the shortest time for the best price.  If a bank loan falls through because your property is overpriced, you have lost valuable time, opportunity and money.

If you do decide to list with the agent that suggests the highest price, oblige them to indicate the period within which they will sell at the higher price.  Hold the agent to that promise by limiting the listing term.  If the agent in our example above who listed at $495,000 would have been obliged to place a time limit on the contract, the Realtor® might have considered pricing the listing within true market value.   The only winner in this particular situation was the Realtor® who "bought the listing" by feeding the seller a price, which seemed to be a potentially wonderful windfall waiting to happen which then turned into a tornado that cost the seller an additional $47,000 in lost carrying costs and valuable time without offers on the market.   Price to sell not to hold.   Harsch Associates Berkshire Real Estate Agency offers the most complete comparative market analysis and encourages the seller to seek an approved Berkshire home appraiser and read the entire appraisal report before discussing it with several agents.  Having a list of questions such as "how will you as an agent and your agency market my home"  "how often will you report to me the activity that my listing has received"  "will you do a custom video of my home and make it available to all potential buyers" and finally "in this market how long will it take to get offers and possible close on the sale of my home at this price."    Selling your property is serious business.  Know the facts before you sign on the dotted line and make a commitment with your money and time. 

Paul Harsch, President of Harsch Association Berkshire Real Estate Agency

Williamstown MA,