Mastermind for February 22nd, How NOT To Price a House
File this Mastermind post under the heading “Scratch Your Head Part Two”. Last week I talked about a market that defies logic, see http://bit.ly/zCZYeP , well if there was ever any further proof, we talked about one of the strangest stories we have heard in a long time. If you didn’t make it to mastermind this week you missed a great example on how not to price a house.
A few weeks ago an agent in our office listed a home for $549k. The research showed that he priced the home pretty close to market value. Despite that, he received eight offers and sold the house for $725k, exactly $176k over asking. Given the current market conditions, I suppose we can only be mildly surprised, but the story gets even more interesting. A week later, the neighbour puts his house on the market. It is a similar house but has two distinct advantages, it has a bigger garage and a better kitchen. The house gets listed for $589k through a different brokerage. Despite the fact that seven people lost out on the house next door, the house did not sell on offer night. Ultimately the listing agent found his own buyer and the home sold after 13 days on the market, for $7k under the asking price.
What gives? How is it possible that two similar houses, located next door to each other, selling a week apart, can sell for a difference of over $140k? While the story is shocking, some of the more experienced agents that attended our Mastermind session have seen it happen before and certainly our hearts go out to the second sellers. So here is our best explanation. The first house got caught up in what the Roman’s called “auctio febris” also known as “auction fever”. When the second house came on the market, the people who came to view it probably felt that the sellers were expecting significantly more and made the judgement call that it either wasn’t worth the money or they didn’t want to get into a heated bidding war.
Without speaking to the listing agent, it is impossible to get the full picture but from a purely casual observer point of view, it seemed that there were some lost opportunities along the way. Our agent wondered why the agent for the second house didn’t call him to find out who the other 7 agents who missed out on the first house were. I have mentioned it in previous posts, it is critical to have good relationships with agents in your neighbourhood so that you can share information. Finally, we all agreed that if the first house was actually worth the eventual sale price then the agent probably should have listed it for $719K and not held back offers. The logic behind that strategy is simple. The value has already been established so setting the price significantly under “market Value” was off-putting to potential buyers. Once again proof that the pricing a home is not as easy as it seems.
As usual, I look forward to your comments, so please drop me a line when you can. RealtyLab works because we all share great stories. Have a great week!