Palos Verdes Real Estate

The High Price of Greed

This is more important with regard to real estate than ever, so listen up: 

Understandably, I have seen more than the usual number of new listings lately come out at unrealistically high prices.  It’s understandable because a) every seller wants to get the highest possible price for his house, b) feels his house is special (that’s why he bought it), c) may have gotten used to shortcomings in location, lot size, floor plan, etc, d) and, in a slower market, is tempted to measure his house against others for sale in the neighborhood.

Reality check:  none of those reasons are valid, and the strategy of going out high with the idea that “we can always come down”, more often than not, backfires and produces exactly the undesired result.  In any market, the higher the Days on Market number in the listing, the bigger the disadvantage to the seller.  Used to be that we could subvert the system by cancelling the old listing and re-listing under a new MLS number, but gnomes got wise to that.  There is a field in the listing called CDOM (Cumulative Days on Market) which inexorably ticks upward, and cannot be altered, hacked, or deleted.  At some point in the listing, depending upon the market, that number becomes a ball and chain.  Despite the machinations and creativity of the listing agent, buyers look at 300 CDOM and think:  gee, if the house was all that desirable, someone would have bought it.  Doesn’t matter if you just reduced the price to the current level last week; the buyer’s agent has to be pretty resourceful to figure that out.

The other problem with a high number is that, in a slower market with a lot of houses for sale, buyer’s agents are looking for ways to cut down the number of homes they have to look at before they show their buyer this weekend, and Days on Market is a common one.  In other words, the agent will sort only by homes with less than 60 DOM, figuring his odds of finding a good value are higher than with those over that.  Let the over 60 ones wait til the next trip out.  Therefore, the showings go way down.

You also tend, at some point, to get the “bottom feeders”:  buyers looking to steal something and figuring, usually illogically, that a house with over 250 DOM may have a desperate owner.  I say illogically because, if the owner were that desperate, he’d have reduced the price and sold it.  The question I always have to ask is:  what makes a buyer, looking at a house with a $2 million asking price, think that that seller is of a frame of mind to take $1.5 million?  Doesn’t matter if that’s what the house is worth — if the seller is asking $2 million for it, he’s obviously not sufficiently motivated to sell it to take what it’s actually worth.  Penmanship practice becomes the only explanation.

So the price of greed is very real:  once you’ve been on the market a long time, the odds are great that you will not get as high a sale price as you would have had the house been priced realistically/accurately to begin with.  When the listing is new, everyone’s excited, no one’s seen it, the CDOM is 0, and all the buyers who have been looking for the past 4 months, have seen everything, but haven’t bought, are on your house like bees on honey.  It is during this initial period, which lasts 30-45 days, that you have the best chance to get the highest price for your house.  Buyers who like it don’t know how much time they have before another offer comes in, couples might be staring down other couples in the living room, agents might be writing offers on the hoods of their cars, etc.  A feeding frenzy could ensue.  OMG.

This entry was posted on Sunday, January 3rd, 2010 at 11:33 am and is filed under Everything I've Written, Sellers. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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