I can't even count how many times I've heard Sellers start pricing discussions with the statement, "We really need to net this amount of money." The declaration usually goes hand-in-hand with the Seller's instruction to: "Try this price, I don't want to give it away," which is usually followed by the caveat, "We can always come down later, but we can never go up."
If you allow yourself to be swayed by a Seller's need to start higher than the property should be priced, you set yourself up for a costly error.
No matter whether you're selling real estate or any other offering, pricing must reflect what the market will bear, not what the Seller needs to net. Your pricing deliberation should focus only on the value as determined by your CMA.
As an example of the type of situation you want to avoid, I have a friend who had a home for sale where I live in Bend, Oregon. He selected an Agent who clearly demonstrates the "get the listing at any price" mentality. The result: His home was for sale at a price at least $200,000 over market value. Every Agent in town knew it was overpriced. His Listing Agent knew it, too, but he was more interested in the for sale sign than the sold sign. He was hoping something good would come out of this poorly priced situation.
The only way they would win the bet is if they found a two-suitcase Buyer - a Buyer with one suitcase that is full of money and another suitcase that is full of stupid! No one would come close to his asking price for a long time to come, if ever.
You can bet his Agent didn't arrive at a price $200,000 above market value based on research or analysis. He listened to his client's pricing input, which was based on what my friend wants to net in order to buy another home for cash, so he has no mortgage. Does the prospective Buyer of his home care what he needs or wants to net? This is truly a ridiculous approach, but it's all too common. Most people who want to start high and reduce later are motivated by the need to net a certain amount. The sad thing is the approach is nearly always counter-productive. Aiming too high rarely works.
The only time you can afford a "start high come down later" Seller is in a market environment where prices are rapidly appreciating and inventory is low. Even then, be sure you're working with an owner who really wants to sell; otherwise you're apt to waste time while your client tests the market's pricing tolerances.
Following are a few scripts you can use with the "start high" crowd of Sellers.
To learn why the owner wants to sell and what role price plays in the decision, ask: "Mr. Seller, is your motivation to get your home sold greater than your motivation to achieve a certain price?"
This powerful question will unlock the Seller's motivation vault. Going back to the example I shared previously, my friend's motivation to obtain an inflated price exceeds his motivation to sell. As an Agent, I'd categorize him not as a Seller, but rather as a home lister or market tester.
If Sellers are stuck on their own profit motive, work to shift their mindset to a Buyer's point of view by saying:
"When we go out looking for a home for you to buy are you, as the Buyer, going to be concerned with what the Seller needs to net? Don't you think that other Buyers are going to feel the same way you do?"
If necessary, add: "Then we can all agree that what a Seller needs to net truthfully has no real connection to the actual market value of the home."
One caveat: This script works well when housing inventory is normal or when an oversupply creates a Buyer's market. It is less effective in a Seller's market where housing inventory is in short supply. The greed of the Sellers in that market drives everything.
Coming in on-the-button That headline probably tips my hand and reveals my preference, so I'll just say it clearly: I personally believe on-the-button pricing is the single best pricing strategy - though too few Agents use it.
Most Agents pad listing prices by adding 5% to 10% to a home's current market value. This strategy is detrimental because even though Sellers realize the overpricing is meant to provide a negotiating allowance, they begin to hope to receive at least some of the padding in their own pockets. They rarely share that fact with their Agent, but it's a true underlying expectation and a real downside of padding. The upside is that padded listings create a real pricing advantage for homes that come on the market priced at their fair market value.
Homes that are listed at market value stands out from the competition. Compared to all the overpriced options, they strike Buyers as a value. This leads to traffic and a high number of showings by other Agents. It also leads to a high increase in new business opportunities for the Listing Agent, who meets numerous prospective clients as a result of to the home's ads, signage, and online posting.