There is a less than admorable side to the practice of real estate that involves agents “buying” listings. Buying a listing is when a real estate agent artificially overvalues a seller’s home in an effort to convince the seller to list the home with him/her. The scenario usually goes as follow. Seller contacts three agents to interview about selling the home. The agents provide the seller with a comparative marketing analysis (CMA) of the home detailing current listings, homes that are under contract and homes that have recently sold that are similar to the home in question. Usually the information is taken from the local multiple Listing Service (MLS) and possibly county records. The seller uses the CMA and the information contained in it as a foundation for pricing the home.
Some of the strategies that I have seen agents use in order to buy a listing include (but not limited to):
Why would an agent want an overpriced listing?
Marketing homes can be an expensive undertaking. Local print advertisements alone can burn up a marketing budget real quick. However, the key to buying a listing is the agent’s belief that he/she can get the seller to reduce the list price quickly. The quicker the reduction the better…for the listing agent.
Another agent benefit is the collateral business that comes from having a listing. An agent is likely to pick up one or more buyers and /or sellers from an open house, from a call off of a “for sale” sign or from a “contact for more information” widget on their web site/blog. These contacts can lead to future business. Just think, how many of you know someone who walked into an open house and bought that house? Now think, how many of you know someone who found their real estate agent at an open house? Food for thought, many more people find their realtor through an open house than buy the home during an open house.
How agents buy listings!
I have seen agents take a listing and within one week reduce the price of the home by 10%. The scenario usually goes as follows. Marcia, the home seller, interviews three agents (Jan, Greg, and Peter). Jan convinces homeowner Marcia that her beautiful Los Altos home (which really is a tear down) is worth $1,700,000. Marcia is so delighted that she is going to get 10% more for her house than either Greg or Peter thought it was worth and signs an exclusive listing agreement with Jan. Apparently both Greg and Peter don’t know and/or understand the Los Altos real estate market because they valued the home at around $1,550,000.
The house hits the market and the agent community view it on the Friday Broker’s tour of new listings. The house is open both Saturday and Sunday. Unfortunately, not many people outside of a few neighbors come through the open house. The neighbors seem quite happy, hoping the home sells for close to its list price. There is only one showing the entire week. Marcia begins to wonder….has something gone wrong? Why aren’t people looking at my house? After all, Jan said it was so beautiful and well priced.
Marcia should be thankful that she has Jan working for her because Jan aptly notices a sudden downward change in the Los Altos real estate market. She calls Marcia and says “Marcia, Marcia, Marcia… the market has changed and we must drop the price or we’ll be chasing the market down.” The next day the list price is reduced to $1,649,000. Marcia is excited in anticipation that her home will now sell and she can move back to her childhood town of Santa Monica.
Unfortunately, things don’t go as planned. The home still isn’t having any showings, yet the open house traffic seems good. Jan is meeting lots of good buyers, unfortunately none of them are for Marcia’s house. Jan talks to Marcia about another price adjustment. Fortunately for Marcia, she is still ahead of the game compared to what Greg and Peter recommended. The home continues to sit. It is reduced several more times until the list price is now $1,498,000. Marcia is getting frustrated, its been over two months and the home has had 4 price reductions. Finally, Jan receives an offer from Alice.
The offer is for $1,435,000., Marcia is mad and even more frustrated and flat out emotionally spent. When this all started, Marcia had dreams of vacationing in Hawaii before moving to southern California. Now she is looking at selling the home for $115,000 less than what Greg and Peter thought it should have sold for. Why was Alice’s offer so low?
Mike, Alice’s agent, tells Jan that Marcia’s home has become stale and stigmatized because it has been on the market for so long. After all, the average days on the market for a home in Los Altos hovers around 25 days and Marcia’s house has been on the market for almost 3 times that. In Alice’s mind (and every other buyer), something must be wrong with the home and its reflected in Alice’s offer. Marcia counters the offer and the home eventually sells for $1,470,000.
As a home seller, what can one learn from Marcia’s situation?
Seller’s need to do your homework, be knowledgeable, ask questions, be realistic and don’t let anyone paint a picture that doesn’t mesh with reality.