Should Realtors take over priced listings?

by Steve Crossland, REALTOR in Austin TX on April 20, 2009 · 10 comments

Sylvia and I have turned down some listings recently. We only take listings we think we can sell. The result is, in a market where half of all listings end up Expired or Withdrawn, we just had our first Withdrawn listing in a couple of years last month. And that was because the owner rented the house before we were able to find a buyer. We’ve not lost any listings to Expired status.

To some agents, we are fools. Don’t we know that every listing should generate two new buyers from the sign calls, and therefore even a listing that doesn’t sell is still a listing worth taking? Yes, we know that logic. We know about the 800-number rider signs that would text the Caller ID to us so we can call the buyer back in 3 minutes and try to convert them to an appointment.

We just don’t work that way, nor do we agree with the premise upon which that business strategy is based.

So, there are two basic camps of thought on the issue. One says that listings are supposed to be sold, and if an agent doesn’t think the listing will sell, then don’t take it.

The other point of view is strictly business and numbers. Listings, if marketed properly, generate buyer calls which can be converted to buyer clients who will buy other houses. Who cares if the listing doesn’t sell? Two other sales (on average – if you work it right) will result from having the listing, and that’s good business, right?

Wrong. I disagree with the second line of reasoning, and here’s why.

How do we measure success? I measure it by asking, “was I able to help the person who hired me accomplish what she wanted?”

I’m being hired to sell a house. That’s what I want to do. That’s the outcome I seek. I’m in service first and foremost to that seller client and the client’s needs, not my business plan or profit strategy. If I don’t get the house sold, I deem myself to have failed. I’m not in business to fail, so we don’t take listing that we know won’t sell.

I was on an “expired listing” appointment a few weeks ago. The seller was not happy with the listing agent and was interviewing new agents for the listing, which was about to expire. The house had been listed in the $460Ks. My CMA priced it at about $380K, which the seller absorbed with grim faced disbelief.

The problem with the former agent’s CMA is that he didn’t weed out the greenbelt and golf course lots, and he cherry picked the highest sales, some of which were built by a higher-end builder. It’s like comparing a Lexus to Corolla. His pricing analysis was garbage. Garbage in, garbage out. The home was way over-priced.

I explained to the seller, one by one, why each of the higher priced comparable sales was no good. We eventually were left with the proper homes against which to compare the subject property. Homes on interior lots with no greenbelt, no golf course view, and built by the same middle-of-the-road production builder DR Horton.

The sales data proved that the house would not sell for more than the $380Ks, which was about what was paid for it brand new 3 years prior. That brings up the second reality check, which is that big 4000 sqft homes that sold new three years ago do not sell for much more, if any, than they did three years ago. Especially in neighborhoods such as this one where new homes are still being built.

The third and final reality check was that in order to justify a price in the $460s, one would have to believe that this particular home had appreciated at 7% annually for the past three years, while the values of all the surrounding  homes were flat or had fallen over the same period. It’s simply madness to ignore all of this data and think that a house will sell for an unjustifiable price.

“Can we just try it at $449K and see if the right buyer comes along”?, I was asked. “No”, I said. “It won’t sell in the $400Ks. The right buyer won’t come along. I’d be wasting your time and mine if I listed it at that price. $389K is the highest list price I can take”.

The seller was unwilling to price the home right. We parted ways. It’s back on the market with a new agent. Priced in the $460s again. It’s not going to sell for that price, or anywhere close. Of that, I am 100% certain.

Should I have taken that listing? No. Doing so would destroy the credibility that Sylvia and I enjoy when we talk with prospective sellers about our success ratio. We don’t participate in seller fantasies. We sell houses.

Also, more than once, we’ve had buyer agents who brought offers tell us something to the effect of “when I saw it was Sylvia’s listing, I knew it was going to show well and be priced right and I called my buyer right away to go look”.  Why would we give up that reputation?

Why has the seller been able to find two other agents to take the listing at such a high price? Because some agents take any listing they can get, no matter the price. Other agents simply don’t know how to price a property, or they want a listing so badly (ego) that they ignore reality and think maybe they’ll get the seller to drop the price later.

No matter the rationale, it’s not a recipe for success for either the agent or the seller. It might be a recipe for profit for the agent, if he works the sign calls right, but profit and success are not the same. We succeed by helping others achieve, not by using them to further our own gains.

{ 10 comments… read them below or add one }

1 shireen April 20, 2009 at 12:53 pm

Bravo!

2 Sam Chapman April 20, 2009 at 2:12 pm

I completely agree. I turned down an opportunity last week to list a home in Arbolago that would have been around $1.2 million. There are 10 homes in that small community on the market and they are probably all overpriced. I told the owner that I would take a listing if he would price under $1 million and he said that he woudn’t.

3 New Austinite April 20, 2009 at 9:28 pm

Why are sellers listing high?

4 Jim April 21, 2009 at 7:55 am

Discount brokers take listings just so they can get buyer calls. They make so little off of the listing, that it’s almost better for them if it sits there for a long time and generates more buyer leads.

5 Steve Crossland April 21, 2009 at 9:23 am

> Discount brokers take listings just so they can get buyer calls.

I’d be surprised if any Discount Brokers are that well developed in their thinking and strategy. Most I’ve dealt with are not competent at all, so it would shock me to encounter a really smart one because, if they were in fact really smart, they’d know that they have adopted a niche business strategy that collapses in slow markets.

Steve

6 anonymous April 21, 2009 at 9:31 pm

Steve,
I’d think that discount brokers might have a slight edge in a slow market. The keep their investment in any listing rock bottom low and they may likely pickup sellers when they come to capitulation and accept a price inline with reality.

7 Ray April 21, 2009 at 11:04 pm

New Austinite… The only people qualified to set the price of their property are the owners of said property. You call it high, they call it a price below which they have no need to sell. Who do you think is correct? It actually very simple. Of course if the market makers – which in the ‘closed shop’ system of licensed realtors and their exclusive access to the MLS still, but decreasingly so, means the realtors and realtor association(s) – refuse to acknowledge the real price of property then as we have seen the volume peters out. As soon as the market makers start meeting the real market i.e., advising their buyers to pay a bit more, and start accepting listings at prices the non desperate (99% of Austin sellers at least) sellers expect then volume will pick up…. and yes, the other factor is access to financing. Corrupt banks (and that’s most of the TARP banks) need to wake up and start spreading the TARP funds out to customers before we can have any market…. Meanwhile local sellers are on strike but not worried.

8 Garreth Wilcock April 21, 2009 at 11:54 pm

A perfect explanation of the difference between helping someone list a home and helping someone sell their home.

9 Steve Crossland April 22, 2009 at 2:30 pm

> I’d think that discount brokers might have a slight edge in a slow market.

No, they generally go out of business, in droves (check Arizona, California, Nevada, Florida) as seller opt for experienced full service agents in the tougher market. This is an observable fact.

Steve

10 Robert Grunnah April 22, 2009 at 6:42 pm

I think it has a lot to do with how agents value their time. If an agent has little business and a weak pipeline, they can accomplish the following by taking an overpriced listing:

* Fill their idle time with something to do
* Network with sellers and possible (though unlikely) buyers
* Build brand recognition – however faint, having a sign and MLS listing is better than no signs and no listings

However, once an agent’s time is “saturated” and they’re not sitting around idly, the above benefits are replaced by these negatives:

* Opportunity cost – precious resources allocated to an unlikely sale, and taken away from marketing to truly motivated market participants
* Wasted marketing resources – we probably spend $500 just to get a listing on the market if you factor in soft costs like Realtor dues, website marketing, gas, signage, flyers, etc. That adds up if you have a lot of listings that don’t sell. Even worse are when you have a listing that gets 100 calls and showings and no offers – imagine how valuable that time would be spent working viable opportunities.
* Lost credibility within the Realtor community. This is huge. I want people to see our listings and know from past experience that they’re reasonably priced. That will cause them (and therefore their clients) to take new listings seriously, which will hopefully lead to decreased marketing times and quicker sales for our clients
* Negative metrics. We can advertise to clients that we sell much quicker than other duplex brokers and for a much higher final sale price percentage (of listed) – because we’ve vetted opportunities in advance and only take the listings we can reasonably sell. That fact, in turn, allows us to market simply better performance metrics than the competition – thereby assuring a steady stream of future business.

Summary – overpriced listings may make financial sense for agents just starting out, or for agents that have a completely dry pipeline.

But for established agents with a reasonable pipeline, overpriced listings are a very likely way to damage your business.

Robert

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