Biggest Lie About Selling a House in DC
I met a client recently to discuss the sale of their home. They are moving on to greener pastures and selling their biggest investment. They are interviewing a lot of listing agents, and those conversations helped inform them of questions to ask other agents. One of the questions asked, I knew to be the biggest lie peddled to home sellers. We’re going to talk about it today.
When it comes to listing homes for sale, I believe in being collaborative with sellers. I get that there are very successful listing agents who follow their formula. That’s great for them. I don’t do that. I believe in meeting people where they are. If they tell me they can’t paint another wall or renovate a kitchen then I listen to them. Even if I offer to front that money, for many people it’s not just about the money. It’s the time and the emotional and mental bandwidth needed to disrupt life for repairs and accommodate a contractor in the house. Sales is not a one-size-fits-all approach. I don’t like to bust into someone’s house cooing and twirling like Maria von Trapp. I want to know what you want to happen and then I will let you know if I can make that happen.
What do the Maria’s of the world come in and talk about in your home? All kinds of things. Mostly they want you to know about them. How talented they are. How skilled they are at selling homes. How well they will decorate. Oh, and by the way, they want you to know how good their track record is.
One of the metrics that many real estate agents like to cite to prove their performance is the list price to sales price ratio. “My list price to sales price ratio is 103%.” “Mine is 104%.” These proclamations are designed to make the seller of the house think, “Wow, this agent is able to get so much above list price for their clients than the competition. I should hire them.”
DO NOT FALL INTO THE TRAP!
You should not care what an agent’s list price to sales price ratio is.
Why not?
When an agent proudly claims their list price to sales price ratio is over 100%, they are hoping that you then equate that to how amazing they are at selling homes. Everyone seems to feel if an agent lists a home that escalates $100,000, $200,000 or more that they are some genius rockstar real estate agent. The question people should be asking though is why so many people were willing to pay so much more over asking. The follow up question should then be: Shouldn’t the agent have started the price higher?
This has been a pricing strategy for quite a few years – price it lower to attract the most buyers. Many agents will tell you that this is a proven strategy because a lower price elicits more buyers. Sure, but, if the house ultimately sells for $100,000 over asking, then couldn’t we argue that it was underpriced? There is a real danger in underpricing a home. Hoping the price ratchets up to the actual market value and beyond is tenuous at best and downright frightening at worst. List it at the beginning of massive rain storms or on the tail end of a bad news week and that could seriously impact the number of buyers who are interested.
Now, pretend you are the seller of a home and an agent presents you with this pricing strategy. So, you hire them, follow their advice, and price a lower than the comparable sales. Let’s look at a couple examples.
You list your house for $1,000,000. The market value said it’s worth $1,050,000. The agent said, “Let’s list it at $1M so that you capture all those buyers who have their max price set at $1M. This could prove a good strategy.
Property goes live and here come the offers. You have five offers and one escalates to $1,112,000, in $10,000 increments. The second in line escalates to $1,080,000. The highest offer would get it for $1,090,000, that is $1,080,000 plus the $10,000 increment. Not bad. Too bad you couldn’t capture the additional $22,000 but you did well. The listing agent is going to tell everyone she got 9% over list price. What a statistic to add to their portfolio as she Maria von Trapps her way to her next appointment telling everyone she got 109% over asking.
But you’ll never know how much more money you could have gotten. You left money on the table.
What if you decided to reach a bit because there’s nothing for sale in the area. You list your house at $1,100,000. Instead of five offers, you receive two offers. The first offer, who in the scenario above escalated to $1,112,000 actually escalates now to $1,120,000. There’s that second offer which capped out at $1,080,000 in the first scenario. They are going to reach for the $1,100,000 but hope they get it at list price since they feel it’s priced beyond the comparable sales anyway. First offer still wins, except this time you walk away with $1,110,000, that is, list price plus $10,000 in the escalator. Now Maria can claim an almost 101% list price to sales price ratio. You got more money and this was a better outcome.
But what if you priced it at $1,120,000? You will still get that first offer, and they may go to $1,112,000 like they did in that first scenario when the house was priced, or maybe they will go to $1,115,000 to try to shave a bit off the list price. This is the best outcome. Yes, you didn’t achieve list price, but it doesn’t matter. You got the most money in this scenario and didn’t leave money on the table that some buyer would have feasibly paid but didn’t have to.
You didn’t allow yourself to be talked into listing for lower.
You didn’t take a chance that the market would land you at market value.
This is why the best list price to sales price ratio is actually more like 99%. This is how you will know the house was priced properly, that you as a seller didn’t underprice it, and you squeezed every last penny out of it that was possible.
