Why Real Estate Agents Take Overpriced Listings

Confident realtor meets with clients
••• SDI Productions / Getty Images

Silly as it may sound, many real estate agents take overpriced listings, even in buyers' markets where fewer buyers purchase. Often, it does not matter to the agent if the overpriced real estate listings do not sell. Here are some of the reasons why an agent takes these listings anyway.

They're Outpricing the Competition

As a seller interviews agents, home value estimates often creeps upward. Maybe the first agent knows there will be two other agents competing for the listing, so the first agent names an astronomical figure. The second agent, on hearing the first agent's price, beats it. The third agent comes in higher yet.

A seller who chooses an agent based on which estimate is highest without considering other factors is the ultimate loser. Yet almost every seller operates in this manner. It's a shame because so few agents take the time to educate sellers that other factors such as marketing plans and the agent's negotiation abilities are far more important than the estimate of value.

Choose your agent based on honesty, ethics, experience, competence, and marketing. Do not chase after those who toss around unrealistically high numbers.

Free Advertising for the Agent

Every "For Sale" sign advertises the agent's company and the agent. Many signs include the agent's website and phone number. Some even sport the agent's headshot—large and in color. You can think of it as a giant billboard for the agent.

If the home is located on a major street, all the better for the agent. Probably thousands of drivers pass the sign each day and will see that agent's name. And after the signpost is in the ground, it doesn't cost the agent a dime to leave it there.

Listing the home is another means of free advertising. The home will show up on home listing websites, along with the agent's name, picture, and contact information. While buyers may not be interested in the overpriced listing, it never hurts for an agent to have their name and number out there.

Finding Buyers Through Listings

Overpriced real estate listings enable agents to find new buyers who might be potential clients. There are different ways in which agents can find buyers:

  • Sign calls: If a buyer wants to find out the price of a home, typically, they will call the agent's cell phone number and ask. Agents who are on the ball will try to recruit that buyer to work with them as long as they are not already working with another agent.
  • Open houses: Agents can hold an open house and find buyers that way as well. If buyers are not interested in the home—and they will not be once they find out the price—the agent is free to show the buyers other homes in that price range.
  • Newspaper advertisements: An agent with an overpriced listing often will not put the address in the paper but will list the details along with the price. That way, buyers who can afford to pay that amount will call to inquire. Now, all an agent has to do is suggest other homes in that particular price range that are worthwhile.

Possibility of a Price Reduction

Even if an agent knows they are taking an overpriced listing, they might be telling themselves that when the home does not sell within a few weeks, they can persuade the seller to lower the price and then earn a commission when it sells.

But interest in a home typically wanes after a few weeks, so there are fewer buyers for that home when the price falls. Buyers also think that there is something wrong with a home that does not sell right away or are worried that the seller may have dropped the price because a major defect was discovered. Price reductions hurt the seller and often make a buyer wonder how much lower the price could drop. So a buyer will typically offer even less after a price reduction.

The Seller Is Insistent

While agents do what they can to inform a seller of what's realistic, the seller ultimately decides the home's price. The only other option for the agent would be to walk away, but there may be reasons that's not practical. For example, the seller may be a friend or relative of a valued client. Or the listing may be in a neighborhood the agent's been trying to break into. The agent is required to act as instructed by the seller, even if that means overpricing a listing.