All over the country, home sellers are telling real estate agents, "I don't care what your analysis says my house is worth! I just want to test the market at a good bit more than that."
The next thing we hear them say is, "Listen, it just takes one!"
OK, that's not how it works.
You need something more than a hunch or a crystal ball to come up with the magic number that will attract offers on your home. You need an analysis that will give you a well-focused snapshot of what is happening in your building or neighborhood - right now.
Tonight, I am preparing a market analysis for some sellers in one of Washington's premier buildings, and I was totally struck by some of the numbers that I saw.
I looked at the eight units that have sold since the first of the year. The average sold price was $614,375. And the average list price was $666,625, only about 8 percent higher that what these units sold for. But the original price where the sellers tested the market was a whopping $806,375. This means the units that sold went for an average of 24% less than the optimistic "test" price. And every single one of these sellers had to negotiate with buyers who wound up getting their units for less, sometimes much less, than the sellers were asking.
During the same time, 21 sellers took their units off the market altogether, and 11 of those had had no price reduction at the time they withdrew from the market.
The MRIS statistics do not, of course, tell the entire story. They don't show whether or not any of these sellers attracted offers that they declined to accept. They don't tell us whose idea the price was to begin with. It might have been sellers trying to test the market, or it might have been over optimistic listing agents.
Either way, I think it's important for sellers to expect a carefully prepared analysis of what is going on in the local market as part of coming up with that magic number - the one that will at least attract buyers who want to make offers on the house or apartment.
And remember -
You don't test the market
The market tests you!
And if you price your home too high to attract offers, the market will flunk you! Yep! A big ole "F".
When your market speaks to you, it could care less what you paid for the property, how much you improved it, or what you need to buy your next place.
Yeah, that old market can be just ruthless!
Those are dreaded words indeed - this might be the worst time ever to "test the market." Sadly, the result is almost always a lower price than if they hard started reasonably.
"the market tests you", I love that!!! And so very true, it's a pass/fail exam!
Patricia - I love that tag phrase of yours in this post. My post today proves you and I are on the same wave length about the market.
Pat
A great post about a property and your right the market does test us.
Good luck and success.
Lou Ludwig
It amazes me that Sellers just don't "get it". Would they pay $800K for a home when other similar homes have sold in the $600Ks? I don't think so! So why would they expect someone else to do the same. And even if you were to find an idiot willing to do so, the lender will save them from themselves! It is what is is!
it is sooo important to tell the entire story!
This amazes me that it is so hard for sellers to understand this. How do they expect the house to appraise?
Love your post, Patricia! I've talked with so people selling their homes all over the country. They simply do not understand what is involved in coming up with a recommended listing price. It is our job to educate them, but some truly believe that it's just a big scam being pulled by real estate agents. I'm going to start saying, "Well, a real estate agent in D.C. once said, "You don't test the market. The market tests you."
Pat, i like that you may be telling them they get a F for pricing strategy & then why...it will get their attention to listen with your line the market tests you! Blame it on the short sales & foreclosures that's what I need to do most times...and oh the appraiser.
I love the way you compared it to a school test. Pass or fail. It's always a choice. It's amazing, no matter what area you sell real estate in, we are all dealing with the same issues. Thank you Patrica.
Today, I had a seller tell me she chose her FSBO list price of $230k because the house next door sold for $250k.
"When did the house next door sell?"
"Just a few YEARS ago and it had NO PROBLEM appraising"
Ha!
Pat, Great post! We've been lucky in our area and not attracted the overly optimistic sellers that won't acknowledge the data we show them. Most of that crowd is probably just staying off the market until the media tells them it's all better now! :)
Well said! Doesn't it just astound you that after 2-3 years of declining home values and negative market news that we still have sellers that want to test the market?
Great post. Thank you for sharing!
Patricia:
This is not a good post!
It's a fantastic post. This is very well written and explains the defeating proposition of over pricing in the marketplace. The market let's you know the right price.... You used supporting data to prove the argument and achieved a solid conclusion....
What a wonderfully constructed piece... congrats!
The AR market should give you an A+
Sergio
Very good blog, down with the testers and hooray for those who believe in and trust the realtors!
Pat - it's usually pretty interesting when you look at what is really going on in the market, especially as far as original list price and price reducations. It's pretty normal for sellers to think their property is unique - what homeowner doesn't have some sort of ego about their home. But no matter what we say, or they want, the buyers will lead the charge pretty clearly.
Good luck with your listing presentation.
Jeff
Its better to not list at all than test the market. They are hiring us as professionals and need to listen to our advice! Of course we represent our clients and sell their home for the highest price possible but they have to be realistic.
Pat I rank testing the market right up there with "we need" as if the buyer would take that into consideration - it's usually the same type person that uses either premise
Patricia,
As you showed, the market tested them, and I can't call the result "with flying colors". But if you price it right and it is sold for the "right " price, you may have clients who would be suspicious to the end of their lives that they might have gotten a better offer.
Amazingly there are still a few die-hard market testers out there, but more often now I'm talking with owners that get it and are willing to be realistic.
Patricia:
Sellers will usually suggest that you price their home with plenty of room for all of the negotiation that is bound to take place. When, in fact it needs to be priced to attract people to even want to make an offer on it.
All we can do is show them the facts.
Pat-and if you tested the market and realize the falicy of your test then lower it quickly. Don't slide it slowly to the bottom. Rip the bandaid off and get an offer on the table.
Great turn of phrase, Pat. You don't test the market, it tests you. I'll have to remember that one.
Indeed it does... I've been doing a local survey on that very same thing around here and it doesn't take a rocket scientist figure out the initial listing price "to test the market" is about on average 18% too high... and the market trend data you can amass tells us the gap will widen next month. Meanwhile, homes priced right a selling! Test or sell, make up your mind.
Patricia, thank goodness for agents like you that present tangible, well researched data to clients. That's the only way to get a deal done quickly. To NOT do this at the 1st presentation is just wasting everyone's time because you are doubling your workload.
I just presented an offer on a house. The most recent sale was a short sale just a few doors down that sold for $98 a square foot so that's how my buyer priced the offer. Guess what, the seller was insulted by our offer saying that home was an anomoly. Unfortunately, my buyers disagree because they see that as being the new standard in this community. (I must add that the home is in lots of disrepair and my client will need to invest a significant amount of money to bring the house back to it's previous condition.) Pricing right from the beginning will get the quickest sale.
Howdy and evening to you Patricia
Patricia, you sure are right about, that the markrt tests you. Many folks, which includes Agents in this area have been learning that lesson the hard way.
Have a good one
Dale in New Hampshire
Great post & I love the tagline. Yes, you have to be in the ballpark. I even know that in my biz. If the price is too high, they won't even call back. If you're in the bsllpark, and it's a bit too high, there is the possibiity of negotiation.
Great perspective. We shouldn't waste time marketing something that will give us a bad reputation anyway.
Thanks for the good read Patricia.
Patricia/Seacoast NH
The other thing to remember is that the damn place has to appraise for whatever..... Even if the buyers are willing to pay 25% over market value, it is coming out of their pocket and paying the realtor's commission at that rate. REALLY, Mr. and Ms. Seller?
Pat -- this quote says it all! And remember - You don't test the market The market tests you! We are still seeing lots of over-priced listings. In my opinion it can't be all of the sellers... I think as a profession we may be falling short.
Love the post Pat! Now if we all could have one of those crystal balls:)
Hi Pat!
First, congrats on the feature! The most dreaded words out of a sellers mouth..."I don't have to sell." and "I have lots of time." I hear these words and I just want to shake them silly! They translate into a lot more work for me and ultimately, a lot less money for them...and then they think it is your fault the house didn't sell for more! ARGH!
I know exactly how home sellers feel because we've been talking about selling our home and relocating to the Ocean - and our thought process goes something like this: I want to put down X so that means my house needs to sell for Y. Wrong, that's not how it works, and I know better. But that's still how I'm thinking.
You could probably write this blog 6x a year, every year :) Because there will always be a portion of stubborn, ignorant (in the right meaning of the word) home sellers. But so be it. All the more reasons the public needs experienced, smart Realtors. Albeit Realtors who know what they are doing must sound like a broken record on listing appointments!
ooooo good one, like the spin on this.
We don't have to many test the market in Ann Arbor, most are fairly realistic.
Patricia,
The market tests you, the mortgage world test you, the appraisal process tests you and "Let's see if we can test the market is a COMPLETE WASTE OF TIME!".
I don't need any more tests in my busy day:-)
All the best, Michelle
Love your analogy on this Patricia! Sounds like you could make a killing in that building going after all the homes that have been pulled from the market. Go get' em girl!
When sellers tell me they want to test the market, I start packing up and heading running for the door, lol. Not going for that game anymore. :)
Well said! I am re-blogging this right now.
Great post Patricia and worth of the FP! It's never a good idea to 'test the market' especially today's market!
I like how you put it the market tests you. You want to sell that house you need to pass the test of carefully planned pricing of that home.
A seller who wants to test the market is not a seller, Pat. And I wouldn't even indulge them - our time is way too valuable for that.
I like the points you made about what the MLS' don't tell us -- the offers which were declined (nice way of saying rejected), or whose bright idea it was . . . good post!
Excellent post - and this market issurely testing all of us. Keep the faith!
Oh, I used to love that line: "It just takes one."
You know I let my license go a few years ago - before the bubble burst. Prior to that, it seemed like everyone here thought that some rich preson from California would come and over-pay to buy their house or their land.
I'll admit - a good number of properties here have been sold to Californians. So when the market fell apart here, I wasn't surprised to hear an agent say "We'll be OK again as soon as the market picks up in California."
They've been waiting a while...
A good listing agent is willing to lose the chance to list a property because of unrealistic price expectations by owners. We've lost quite a few to this.
I know the customer tests you when they have a set mind about their house and they are secretly desiring someone to come and give them a reality check of what they are fearing the most. .
Mr Seller.
Thank you for inviting me to your property today. .
First things first. . HIT THE BUTTON!
If we meet with a seller who has a market test in mind...we suggest they call another agent...and unfortunately there are too many out there who will volunteer for the job of being the first realtor...and they will not be the last...no closing no paycheck.
Statistics may not tell the whole story but they don't lie either. I tell sellers Hey. here are the numbers, I don't make this stuff up.
Indeed, pricing correctly from the start is so important!
So true, so true, Pat! Just completed a BPO on which I had to justify my suggested pricing strategy because it was so out-of-line with comparable homes for sale. (Fit nicely into the prices buyers actually paid for the closed deals!) Too many sellers waste energy and time testing!
Most people don't realize that the test is over in about 2 weeks to a month. Remaining at a speculative price for 2,3 or 6 months isn't testing, it is an exercise in obstinate masochism.
Patricia famous last words, "Let's see what happens." I've come to the conclusion that sellers who test the market really don't want to sell. Good luck with your listing appointment.
Rehearse, rehearse, drill, repeat, rehearse a dozen times! I love this:
You don't test the market
The market tests you!
And if you price your home too high to attract offers, the market will flunk you! Yep! A big ole "F".
When your market speaks to you, it could care less what you paid for the property, how much you improved it, or what you need to buy your next place.
Yeah, that old market can be just ruthless!
Pat,
Excellent! A property is worth what a buyer is willing to pay...it amazes me that someone can't see that given two properties similar that someone would buy one at a higher price...
Patricia...
Very good point to make. On listing homes or even renting property out, I always look to see the personal value that the particular unit has or makes it stand out. Then, I put my own value on it. Somethings allow you to sell or rent a property quicker, but do not cause you to get more money for it necessarily. When listing a property, if the seller can convince me that their position makes sense, then I will "test" with them and as your post most elegantly states....be tested while I am testing...... the end result being that after all tests are conducted, we proceed using that data as the final decision maker.....
Thank you
When I hear those infamous words I always ask the seller are you interested in just listing your home or do you want to sell your home---motivation-motivation. Success leaves clues.
Pat: This is such a great post! I am going to attribute this quote to a "wise agent in the Washington DC market" when I have these discussion with clients. Great way to cut right to the chase. No one wants an "f"!
Greatness right there; "The Market Tests You...". Loved the post and the new saying, thanks for sharing the insight.
I think that sellers who want to “test the market” and list their home at 25% over its current value are hoping the win the lottery. Is it possible that they’ll be lucky and have “The One Buyer” walk in and be willing to pay tens-of-thousands over it’s true value? Sure, it’s possible… just like it’s possible to win the lottery.
You just can count on it, that’s all.
So just as you shouldn’t count on winning the lottery, you shouldn’t count on an ill-informed, cash-rich, money-is-no-object buyer to purchase your overpriced home.
If you are a serious seller, then be serious about properly pricing your home to sell.
Congratulations on your feature. It's very true that "testing" the market is no way to hit the market. Hitting the market with facts and figures to back up your list price is the only way to go. After all, why list if you aren't serious about selling?
Pat, obviously those 21 and 11 were exceptions and not at all like your maybe seller, or at least that's what they might think. The last 2 years have seen so many changes in home values all over, and it is time for sellers to get attuned to the market, if they really want to sell.
As a follow-up - In my market, ten communities surrounding Upland, CA., the average July selling price in July was 99.4% of the asking price. To put this into perspective, those same cities have an average of 3.6 months of inventory across all price ranges. Not much testing going on here. The few that do frequently end up as expired listings.
Certainly, this is a generalization, but still is Local. There is a range of 96.1% to 101.9% selling price to asking price ratio for the individual cities in that same period. As you would expect, the city with the greatest number of months of inventory has the lowest solt/list price ratio.
Great, specific information, Pat. Let's say, however, that your seller still wants to test the market at a higher price. Let's also say that an uneducated buyer, who has an equally uneducated agent, decides to overpay for the property based on the statistics you've presented. Unless this is a cash buyer, there will be an appraisal conducted by the buyer's lender. What happens when that appraisal comes in woefully low? What then?
Amen!
Pat, Testing the market can truly be a recipe for disaster! It's so important to have a carefully and fully prepared market analysis to present to sellers today.
Hi Patricia - So important for sellers to realize! I love that: "You don't test the market; the market tests you." Also, it seems to me that homes that have been on the market at too high a price become so stale that they don't get many showings even after they drop the price to where it should have been.
Sometimes a clever and humorous quip helps a person over the hump of disbelief or dismay. This one is priceless. Thanks.
With all of these market statistics at your fingertips, you can at least know what is a reasonable price. If they want to go on the high end of 24% higher than what other units ultimately sold for, at least you know where to draw the line and not take on such an overpriced listing. Best of luck to you!