The Problem with Over Price Listings (and their sellers)
Let’s say you’re a buyer, you’ve traveled to Austin to find a home, spent the weekend looking at homes with your Realtor and found a home you like. In fact, you’ve found your top three picks, but one stands out as your favorite. Problem is, it’s way over priced.
Do you make an offer anyway, well below the list price, hoping the seller and the listing agent will accept your rationale for the offer price? Well, it depends, but usually, yes, we will have our buyer make a run at the home if it’s their top pick.
Sometimes this results in success, but sometimes it results in wasted time and lost opportunity for better priced homes. If our buyer has roughly equal leanings toward two different homes, and they are substantially comparable, we would go first for the properly priced home because it offers the better odds for achieving an accepted offer.
Over priced listings are always a bit of a gamble. But if the buyer clearly has a preference for a top choice, regardless of it being priced too high, we take a run at it with an offer based on market value.
How do we do this and what might the result be? Read on.
I recently submitted an offer for an overpriced listing. The offer was send with the following note to the listing agent.
Attached is an offer for {Address} in {Neighborhood}. Also attached is a pre-qualification letter. My buyer is relocating from {City}.
The offer price is based on the Market Analysis that I completed for the Buyer, and factors in the updating needed, especially in the kitchen and master bath. The buyer likes the lot and the wood floors, but we saw several other homes in the same price/size range in {Neighborhood} and also SW Austin that need no updating and were on greenbelt lots.
I hope the seller will give strong consideration to this offer and I look forward to hearing back from you soon.
Our offer was about 7% below the list price. Result: Seller didn’t even provide a counter-offer. Agent sent me her own CMA, as I requested, so I could make sure I wasn’t missing some comps. The CMA was interesting, if not amusing. Here was my response.
Dear {agent},
Thanks for the response. A couple of points for you and your seller to consider.
{Listing address} is built in 1990. Your oldest comp is 1997 and you’ve included 2 comps built 2004, one built 2005 and four built in 1999 (nine+ years newer than {Listing}. Those are not valid comps as the interior conditions of those newer ones, anything after 1999 really, are not comparable to the current outdated kitchen (pink countertops) and interior condition (dated, tired master bath) of {Listing}.
When I do a market analysis for a home built in 1990, I generally limit the comps to homes no more than 5 years older due to the change in decor and other features that occurred largely around 1995 in Austin. Thus I cut off the comps for my buyer CMA at 1995 whereas you don’t have any comps older than 1997. Therein lies the gap in value between what your seller thinks the home is worth and what I’m telling my buyer its’ worth.
If you run a new CMA and properly leave out newer homes, or older homes with full remodel and updating, I think you and your seller will find that the offer sent in by my buyer was a reasonable offer price.
Also, if you tour the competing homes in the immediate area of (Neighborhood} (homes priced $310K or less), as my buyers and I did on Sunday, you’ll see that for about the same price, or a bit higher, they can purchase a home with a modern updated kitchen and master bath, in model condition on a greenbelt. Though they liked the big culdesac lot, they are not willing to pay more than what my CMA suggests the home to be worth.
I’m disappointed that the seller would not even provide a counter-offer. I believe you and the seller are relying on optimistic and invalid CMA data for your pricing. The buyers appreciate your consideration but will be moving on to their next choice. If the sellers wish to reconsider, based on what I’ve stated above, please let me know asap as we’ll be sending in a new offer on another home tonight.
Response from the other agent, and finally we get to the obvious truth:
I have made all of your points with my Sellers. They have an amount that they are not willing to go below, even though the market is telling them the home will sell for less. They do not have to move, they are just choosing to try and sell at this price. I am sorry for their inability to counter also, but they felt like it would be wasting time to try and bridge the gap.
So there we have it. Some sellers know they have their home over priced, they don’t have to move, and we have agents willing to take those listings knowing they are over priced.
Wouldn’t it be nice if the listing comments said “we know it’s over priced. Seller is not going to budge but is hoping an uneducated, poorly represented buyer with irrational enthusiasm (from California probably) will pay too much”
That would have saved my buyer and me two days of time, during which one of their other top picks went pending. Thus is the risk of going after an over priced favorite, though sometimes it’s worth the risk. Just not in this case.
