Don't Leave Money On The Table [Selling It]

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by Osman Parvez
Want to know a dirty secret?     Sellers in hot markets leave money on the table.  It happens all the time.

I want you to keep this number in mind:  27.7%.      

That's the percentage of 3 bedroom houses in Boulder, priced under $500,000 which sold for full asking or more this past summer.      I wonder how many of those sellers expected a full price offer.    With a median days on market of only 33 - that's from initial listing to closing - these properties FLEW off the market.    In my professional opinion, most of them were under priced.    We're talking about nearly 1/3 of the sales in this price range!

I'd point fingers and name names, but I'd like to keep the mob of angry, pitchfork wielding Boulder Realtors off my front door.   Plus, I will likely be negotiating with them (on your behalf) in the near future.   What can I say, it's a small town.    Let's keep it civil.

How To Leave Money On the Table 101

Here's how it goes down.     The seller contacts their buddy, the agent.    The agent puts together a comparative market analysis (CMA), highlighting recent sales.    Based on this presentation, the listing agent convinces the seller that the house is worth - let's say $375,000.    The seller signs a listing agreement, the agent markets the house, and BOOM - an offer appears for full asking price within a few days.     Of course, the seller signs the contract.     It is, after all the price the house was worth - right?

Wrong.

The seller left tens of thousands of dollars on the table.     See, they didn't really know the houses shown in the comparables.   They don't know that the other houses which sold for $375,000 had cheap finishes, deferred maintenance, and a poor layout.      They don't know that the location was next to an ugly apartment building.   They also didn't know that the market was much weaker a few months ago because sellers rarely know about the price trend.    Heck, a lot Realtors are clueless when it comes to market conditions.   The real value of the house might have been $395,000 or more.

And once you're under contract, guess what?    It's too late.

The big mistake was choosing an agent that valued their commission more than the client relationship and definitely more than their integrity.   It takes a lot of work to deeply analyze the historical sales, understand the trend, and keep tabs on the current competition.    If you're considering buying or selling, choose the best agent for the job, the one willing to do the work that helps you get the most money for your house.

Rule #1.   Price Ahead of the Trend, ALWAYS

Real estate prices are not static.     On the down side of a real estate cycle, prices are sticky but they do slide over time.   On the upside of a cycle, prices increase rapidly.

Guess what part of the cycle we're in right now?   Hint:  It's not the down cycle (for houses under $500,000 in Boulder).    

When the market has very little inventory and demand is strong, you should price ahead of the trend unless you intend to run an auction style listing.   Let me make this clear.  I'm talking about asking for MORE than the most recent comparable sales.     The risk the seller takes is minimal.   If he or she wishes to sell it faster, they can simply drop the price back to the historical comps.    I would recommend doing this within a reasonable period of time, but yes, it remains an option and it shouldn't taint the listing.  

If you remember nothing else, remember this;  an upward moving market is forgiving of price mistakes.   A downward moving market treats overpricing like the kiss of death, it ends with a long listing period and less than you would have gotten otherwise.

Here in Boulder, in certain price ranges and locations, we're in an upward moving market.    Price accordingly.   If you end up with a bidding war, it should be by design never by accident - and you should have a strategy that uses auction energy to drive the price upwards.    Most agents prefer the easy "submit your highest and best" approach.     That's the way to end the auction quickly, but it's not the best way to maximize the price.

Know the Market

An intelligent marketing strategy includes many factors, not just the asking price.    From cosmetic improvements to staging to photography to negotiation tactics, it should all be part of the game plan.    As I've mentioned above, a deliberate strategy of underpricing can result in an intentional bidding war.    As Realtors, we've successfully utilized that strategy to drive the final selling price much higher than anticipated.  It is possible, but it should always be discussed before putting the property on the market.

Strategy should be driven by deep knowledge of market conditions for your specific property type, price range, and location.    The best way to do that is to choose an exceptional agent.  

Remember, as your Realtor it's my job to inform you of what's happening in the market and advise you of your options to maximize the selling price.  It's your job to make the decision on which strategy to pursue.

If you are thinking about selling or buying property and want solid advice, call me.   303.746.6896.    If you're interested in the breakdown of the market, you can see it in the most recent client edition Silver Fern Report (subscribe here).    

---Note: Our goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Silver Fern Homes recommends careful and complete due diligence before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.