The Truth About Our Market – The Vicious Cycle…
Part 4 of a 10-Part Series
Common questions from a Seller to a Realtor sound something like, “Okay, so what about leaving room for negotiation?” and “What if they come in with a lowball offer?” My answer is that when you price the property correctly the first time, you don’t need room for negotiation. To the second question, if somebody comes in low, you don’t have to accept it, or even deal with it. Many Sellers worry that if an offer is made they must somehow make it work. But if somebody lowballs and you were priced right, you simply have your Realtor explain to them the reality of the situation and provide the data to back it up. Pricing can really be that straightforward.
The vicious cycle of overpricing and lowball offers comes from Sellers constantly wanting to leave room for negotiation. They knowingly overprice a property, hoping someone will “at least make an offer.” They become hopeful and begin to view the inflated price as the amount they expect to get for their house. As a result, even reasonable offers begin to seem very low.
The reality is that when you price your home right in the first place, it sells around that list price, in a relatively short amount of time. We’re even seeing multiple offers in Southern Georgian Bay lately, (not to be confused with the bidding wars going on in the city). If priced right, homes get asking price, or a little bit over or under asking price. If it’s priced based on hope or to leave room for negotiation, then even in multiple offer situations, the winning offer is far less than the list price. I experienced an example of this last week where my client made an offer at 92% of list price in a multiple offer situation, and we still won the bid.
In short, the market does not lie. People will give you what they’re willing to pay for your property. No matter how much a Seller inflates the asking price, the value to the Buyer isn’t changed. The fact that Sellers in our area have made a habit of overpricing, usually to leave room for negotiation, means Buyers lack respect for list prices. And the natural reaction…lowball offers! Buyers now go far below market value, in order to join in the negotiation game initiated by the Seller.
In the end, if you list your property 20% over market value and then continually drop the price, then even once you get down to actual market value, there is a stigma on your property. Potential Buyers wonder what’s wrong; is it a problem with the property, or a problem with the price? Selling takes longer, and you could’ve gotten much more if you had priced it right in the first place. When you price a property hopefully or price it to “leave room for negotiation”, you end up defeating yourself and perpetuating this vicious cycle of overpriced homes and “lowball” offers. This cycle makes for a contentious situation within the market that leaves both Sellers and Buyers sceptical, and reduces urgency. Now don’t get me wrong, there is substantial demand up here, but the demand is cautious and people will not overpay.
Please make sure you have all your facts and data in order before listing and be sure to price your property correctly in the first place. Let’s end this vicious cycle.