Overpriced Listings and Discount Brokers

I’ve encountered this scenario on repeated occasions now. My Buyer is interested in an over-priced listing. It’s WAY over-priced – by about $20 per square foot, or about 15%. I am unable to find sales comps that even come close to justifying the list price, but my Buyer likes the place so I try to obtain further information from the listing agent. The property is listed by a Discount Broker. Over-priced listings are, in my experienced, disproportionately represented by Discount Brokers. That seems counter-intuitive to me, but it’s what I’ve observed. You’d think the Seller would use some of the “commission savings” to set a competitive price, but that’s not what we commonly see.

I email the listing agent and the conversation goes exactly as follows:

Me: “Hi, I have a Buyer interested in your listing at 123 AnyStreet but I’m having a hard time finding comps to justify the list price. Can you send me the comps you used to set the price?”

Discount Agent: “The Seller set the price.”

How’s that for a great answer?

My advice to Buyers in these situations is that we completely ignore the list price, perform our Market Analysis, (which we would do anyway), and offer a price that is supported by recent sales of similar properties in that area, and current market conditions. Then be completely ready to walk away if the offer is not accepted, or counter-offered in a serious way.

But since the Discount Broker topic has been floating around in the news a lot lately, this is a good example to use.

Is the Seller making a smart decision to over-price the property? Would the Seller be better served by an agent who won’t take over-priced listings? Is the Seller saving money by hiring a Discount Broker?

As a listing agent, I don’t think I’m doing a Seller any favors if I participate in fantasy pricing, and I won’t do it. A good agent will educate a Seller about pricing and walk away from the listing if the Seller wants to set a price that can’t reasonably be supported. This particular listing has been on the Austin market for more than 180 days now, in a very hot area of Austin, so the market has spoken.

And even if an enthusiast, time strapped California buyer comes along (every Austin Seller’s dream), and offers full price, the loan won’t make it when the property fails to appraise for the contract price.

4 thoughts on “Overpriced Listings and Discount Brokers”

  1. All the people who dare to use discount brokers presently (partly because regular brokers have given discounters such a bad rep) are probably the traditional FSBO type. They want to use discounter to make sure the documents and transactions are legally sound, but most of them are 1- confident about their homes to be easy to sell, and/or 2- they want to make more money than regular sellers. Both reason will push them to price their homes higher than the “comp”. In other words, they want to beat the comp. After all, someone is beating the comp everyday otherwise the average house price will never go up. Traditionally, the FSBO type homeowners tend to price their home higher if not too high.

    So, I guess is, most the people who are trying discounters are more or less experienced home owners who have some real estate experiences before and would love to do a lot of homeworks in order to achieve higher profit.

    I’ve seen 3 houses sold recently on the same week of the listing. All of them are done through discounters. The owners are well-educated and obviously know how to take care of themselves. One couple hosted an open house on a Sunday, and I can tell that they priced their home very well (a 1993 David Weekly one story house for $110/sq. ft.) While suppressing my urge to murdering them while no realtor present (refer to Jim’s comment on how dangerous to sell your own home without a lockbox), I pleasantly chatted with the owners. I was impressed about how organized they are when I asked them about monthly utility cost. The male host was able to pull up past utility bills all the way back to the time when they bought this house! I found this kind of direct interaction with the owner is extremely helpful. Because of the personal relationship built from this, It makes negotiation of buying price much easier. A lot of times, I’ve noticed that the traditional listing agents are very reluctant about letting the potential buyers to meet with the seller until the last moment. I don’t know why (grin).

  2. Unfortunately, this is how discount brokers operate:

    1. Because they make so little, they don’t have time or desire to talk unreasonable sellers down. They’re just happy to get the listing, throw it out there and move on to the next one.

    2. They have no time for lengthy negotiations, etc. They’re busy getting other listings because they make so little off of each one.

    Moral of the story: you get what you pay for. Most discount brokers play the high numbers / low quality game.

    The best way to make more money on a house is to set the reasonable price, ask a few % more, and if the market is hot, there will be a flood of buyers who’ll make even higher offers. Despite what you may think, Bill, home values very rarely go up due to overpricing that buyers accept. It’s usually due to multiple offers and the resulting higher sales price.

  3. I tend to disagree with your portrayal of discount brokers. I have just used a discount broker to purchase a house and so far my experience has been quite good. In fact, I had initially contacted one of the traditional brokers and made an appointment to meet at a certain time. And guess what, he stood me up. I called him and he said he is on his way – but he never made it. And I decided to dump him then and there itself. The next person I called (again a traditional broker) was better, but somehow she seemed to be quite busy to answer my questions and to meet at times which were convenient for me. Finally I turned to a discount broker and as I said before, so far my experience has been quite good. He did a CMA for all the properties that we were interested in and also gave his frank opinions about the houses that we saw.

  4. Hi Girish,

    I do think Discount Brokers have a place in the market, and that certain customers can be well served by a good Discount Agent, depending on circumstances and what they hope to accomplish. Sounds like you found a good agent.


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