Recently, we received a reader question regarding how to set the asking price for a home. The question stemmed from the blog titled Why Real Estate Is Always A Sellers Market, where "Robert S." asked:
Not to be overly cynical, but wouldn't a realtor in a slow market be anxious to convince sellers to list houses for less than they are worth, since some commission is better than no commission?
First of all, I do not believe this is a cynical shot at what I wrote, rather it is a perfectly reasonable and fair question to ask. After all, I do advocate pricing a home to sell, so why wouldn't I just "trick" the home seller into a low asking price for a home, thus enabling me to get a quick commission?
Best Asking Price For A Home
The question about setting a low asking price for a home raises quite a few interesting topic lines. Believe it or not, this is a common question that I receive and I have found that many people just haven't "thought this one through," but once analyzed, I think one can feel safe that enough information exists to protect a home seller from getting burned by this type of action.
- REALTORS® do not set prices, Sellers Do - This is the most important safety net for a home seller who is determining how to set the asking price for a home. If a home seller takes the time to interview well established, successful real estate companies, then the seller is going to get a lot of information regarding the value of the home. A great real estate agent never recommends an asking price for a home, rather this agent demonstrates a value range in which the home is likely to sell, with the lower end bringing a quicker offer, and the higher end being one which should produce a sale during a normal marketing period.
- Some commission is better than no commission - A real estate company gets paid thousands (even tens of thousands) of dollars to successfully sell a home. If you calculate the difference between what a realistic price would yield the company versus a lower price, you will realize the difference is relatively negligible. Thus, if a REALTOR® were to unscrupulously guide a seller to an excessively low asking price for a home, the amount of money earned would still be substantial. The concept of "some" is better than "none" does not stand because the "some" is still a great fee to earn.
- You cannot trick homebuyers - In the old days, REALTORS® were the only ones with information about past home sales and values. The market relied heavily on their opinions of value and how to set the asking price for a home. But with the growth of the internet, there are many websites that one can see a value structure for an area and for homes. Buyers will do their research and will not be tricked into paying more for a home than for what they could purchase a comparable one nearby. Thus, the value "is what it is," based upon competition, supply and demand. If a buyer can figure it out, so too can a seller.
- Why researching your REALTOR® on the web is so important - Trust is something that is earned, not given. Competence is something that should be demonstrated, not expected. When you put these two together, you have the type of real estate professional that you should use for the job of selling your home. Trust alone is not good enough, as most real estate practitioners are part-time and results speak for themselves. The graph below says it all!
Currently, the rate of failure for homes put on the market over the past 365 days is 57%, meaning roughly 6 out of 10 homeowners who marketed their home in the Tallahassee MLS were failures. This seems to confirm that you cannot afford to just hire anybody, rather you need to hire a professional real estate company that knows how to market a home in today's highly competitive, inventory laden housing market.
Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.