“Wiggle Room” in Pricing, A Self Fulfilling Prophecy. Don’t Alienate Potential Buyers.
Many sellers want to add “wiggle room” to the listing price in order to have room to negotiate. Negotiating is a cultural behavior, some cultures expect to negotiate while others do not. Americans do have a tendency to negotiate but we tend to negotiate within limits.
The more “wiggle room” you add to your asking price, the more you will end up negotiating along with alienating a percentage of potential buyers.
Let's start by looking at this from a buyer's perspective. If a buyer is on a real estate website and is looking for a home but does not want to spend more than $500,000, the buyer will put that amount into the search criteria and only homes listed at $500,000 or less will appear. The buyer may add a little extra in order to find a home just above his target price in hopes of negotiating back down to what he actually wants to pay. However, on average he won’t search much above his target amount.
Now let's look at this from a seller's perspective. The seller's home is worth around $500,000 but the seller insists it be listed for $550,000 because he wants room to negotiate.
As you can see in this example, the seller has alienated the potential buyer by listing his house quite a bit above fair market value. Now multiply this by the amount of potential buyers in your market and you can see that the seller has effectively limited his pool of potential buyers.
Now let's assume that the seller listed his house at $510,000 much closer to fair market value. In this case, a buyer looking for a $500,000 home may actually see and consider this particular listing. A win for both parties.
I have heard many times over the years from sellers with overpriced listings “somebody might just come along and pay it”. Yes, maybe but not likely. The more likely scenario is that the seller's property will just sit on the market and the listing will become “stale”. The seller will eventually fire his broker after six months, hire another broker who will convince him to drop the price and the property will end up selling for what it was worth all along.
As a seller, keep in mind that real estate brokerages are in the business of selling property, not advertising property. You may find a broker willing to list and advertise your property for well above market value, but I can assure you that broker is not doing you any favors as these scenarios usually end up with disappointment on both sides.
So here is what you should do, find an experienced and knowledgeable broker and listen to them. They should be able to advise you on a listing price and this advice will be backed up with actual market data. This methodical approach is much more likely to get you to your end goal a whole lot faster and with less frustration then overpricing your Angel Fire or Red River home right out of the gate.
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Rob Swan, Swan Realty
rob@swanrealtyinc.com