A letter from a reader.
I listed my house with a well-known real estate agent in my area because we want to get a small house in town. At first I was excited because there was a lot of activity, but now it seems like everything just died.
Last week I called my agent because we are getting toward the end of the six month listing. When I mentioned that I might go a different direction, he told me that he was putting my house into one of those home magazines and I should wait at least for that to come out since he already spent the money.
I understand his feelings, but I also don’t want to spend another six months with this agent if nothing is happening. He also said that I should consider lowering my price, but I don’t want to do that because I think the right buyer will come along.
What should I do? Should I jump ship and go to another agent? Should I wait for the magazine ad? Should I lower my price?
Frustrated in Ft Worth
You hit on a couple of things here that you should consider so let’s look at them and then maybe you’ll know what to do.
First, there are only a couple of major factors in the sale of any home. Come to think of it, these are the same factors for the sale of any item whether it’s a home, a car, a chinchilla or a #2 pencil. To have something sell, you must have a seller with something to sell and a buyer who is ready, willing and able to buy.
In your case, you are a willing seller so we’re good there. Now all you need is a willing buyer. So where do you find one of those? Simple, right? But don’t ever confuse simple with easy.
Let’s look at where and how home sellers usually find ready, willing and able buyers. For this we turn to our good friends at the National Association of Realtors.
Remember, the above stats are from homes sold using a real estate agent, which makes up about 85% of homes sold each year. The other 15% of buyers ventured into the murky underworld of FSBO sellers (For Sale By Owner). Since FSBO’s don’t have fancy websites to report how they found their buyers, we will need to stick with what we have.
Also, doesn’t that add up to 102%? Leave it to those crazy realtors to start their own math movement, but anyway…
I’m sure you and everyone else noticed that print ads (like that fancy color glossy full pager your agent dangled in front of you) only led to a sale 1% of the time. Therefore we can safely say that waiting for the magazine ad is just a ploy by the agent to get you to sign a listing extension. Don’t fall for it and based on the fact that your agent even attempted to use that tactic, I would jump ship just on principle.
You might be wondering why agents run those ads at all if they only work 1% of the time. Well, I’m glad you asked.
First, agents run giant ads for homes to satisfy their current seller clients. They even cut out copies of the ad and mail them to their sellers just in case they missed it. Afterwards, sellers sit and admire the big fancy ad and feel somehow better.
I know, it makes no sense, but home sellers know they are paying a hefty sum of money to their agent and for some strange reason, they like to see it wasted on these ads. It’s probably loosely related to some form of masturbation, but I’m not a doctor so I’m not really qualified to say that.
Second, agents run giant ads for homes to–wait for it–get more sellers. When agents go out on listing appointments they usually bring a brag book showing their marketing materials. A big part of these materials are old ads for other homes. That way, when the seller does the math on the fees they are about to pay, it kind of softens the blow.
These ads are like food pellets to sellers filling them with hope and letting them rest easy at night knowing that any day the perfect buyer will open that magazine and hear angels singing. Next the buyer will slip into some sort of hypnotic state as they call the phone number and put in a full price cash offer. What a great ad…but hey, who doesn’t love a good fantasy?
Third, agents run giant ads for homes to increase their buyer pool. We will get into the psychotic mind of home buyers another time, but for today’s purposes just recall the last time you were looking for a house. While you were running the wheels off your car trolling every cul-de-sac you could find in your FOMO-induced (Fear Of Missing Out) world tour, your passenger was feverishly leafing through the latest home mag shouting, “look at this one” as you call yet another phone number only to find out it’s sold or not what you wanted. (Yes, buyers are just as delusional as sellers, but I digress.)
Real estate agents know this and so they run ads for homes not to sell you that home, but to get you to raise your hand and say, “Over here, I’m looking for a home.” If the agent is any good, they will put you into their buyer program and the cycle continues.
Think about it–if that house in the ad was such an amazing house at such an amazing price, it would be sold before the magazine or newspaper ad ever made it to the streets.
This brings us to your next question. Should you lower your price? Yes. (This was originally in 100 point type, but it looked annoying so I changed it back.)
I know I haven’t seen your house and I know you don’t like that answer, but that’s the truth. If your home has been on the market for more than 30 days and it’s listed with a real estate agent, that tells me a few things about it based on the graphic above:
- You are on sites like Realtor.com and in the local MLS or Multiple Listing Service. (51%)
- Your agent is telling anyone and everyone about this property. (30%)
- You probably have a sign in your front yard. (7%)
- You have nosy neighbors and people driving by the house. (6%)
- You know at least a few people and they know you are selling your home. (2%)
That covers 96% of the potential buyer pool (See percentages above and just trust me on the math). Therefore you’ve had enough exposure that any likely potential buyer already knows about your house and passed on it. Argue all you like, but I can prove I’m right.
Just for fun, go out to your sign and put up a neon poster board that says, “TODAY ONLY – $1” and I’ll bet you that same dollar you will have a full price offer before you get through one episode of Pawn Stars. As sellers you want to lie to yourself and say that it’s the agent, the advertising or the market, but I assure you–the market never lies. Still don’t believe me, go visit any retailer that’s going out of business. People will buy almost anything if the price is right.
So somewhere between $1 and what ever you’re asking is the price at which your home will sell today. You’ve already tested your price and since you’re writing to me instead of packing up your belongings, I’m assuming it didn’t work. Still don’t believe me? Too bad, I’m moving on because everyone else believes me and soon you will too.
The next logical question is: How much lower do you go? There are no hard and fast rules here, but this might help. Over the years I’ve seen plenty of overpriced homes and when you get close enough you find a few common themes. I’ve taken the liberty of breaking them down for you into a sort of pricing barometer.
In order to use the pricing barometer and do your own experiment, you need to have a clear plastic box on your yard sign with about 50-100 flyers for your home. The flyer can be printed from your agent’s website, but just make sure it has the basics: price, # of beds/baths, square footage, foundation (basement, crawl, slab), garage type, age of home and a little about the condition (think updates, repairs/improvements, etc.).
Once you have the flyers on your sign and they begin to disappear, you can start to read my patented Price-O-Meter to decide just how far overpriced you are.
- If the flyers are disappearing, but no one is calling your agent for more information—>you are at least 15% overpriced.
- If you are getting calls, but no showings—>you are 10-15% overpriced.
- If you are getting showings, but no offers—>you are 5-10% overpriced.
- If you are getting offers—>The Market Doesn’t Lie.
Buyers don’t usually make frivolous offers, so pay attention to what those offers are saying. Once you’ve absorbed the blow, just remember that you can always keep your home. You can either stay there and wait for the market to catch up or you can look into renting your home if you absolutely have to move.
If on the other hand you’re in foreclosure, well that’s an entirely different response so you’ll need to write me another letter to get that answer.
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In the meantime, keep sending your questions. Your best bet is to email me here and I’ll do my best to get right back to you.