Why Real Estate Agents Take Overpriced Listings

Price reduced real estate sign
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Silly as it may sound, lots of real estate agents — even in buyer's markets, where little is selling — take overpriced listings. These agents who continually write ridiculously priced listings gain questionable reputations among their peers. I know because I talk with other agents when I tour new listings, and they tell me.

You might think, "Hey, who cares?" but an agent's reputation is important, especially in tight-knit communities. When buyers and sellers sign a purchase contract, their respective agents enter into a 30- to 45-day relationship — respect for each other and cooperation is crucial.

Agents Secure the Listing by Blowing Away the Competition

  • Sometimes it's a deliberate lie. As a seller interviews each agent, often home value estimate 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, upon 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 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 estimate of value. The comps speak loudly if anybody looks at them. Ultimately, the marketplace establishes value.
  • Sometimes the seller has unreasonable expectations. This still doesn't excuse the agent from explaining how appraisers determine value. A home came on the market on a storybook street in a desirable area of Sacramento, but it was priced $100,000 too high. When asked why, the agent replied, "I know it's overpriced, but I would have lost the listing to somebody else if I didn't agree to that price." Turns out a home two doors down sold for a high figure, but that home had been meticulously maintained, and it boasted a newly remodeled kitchen with top-of-the-line appliances. By comparison, this home was a fixer-upper, but the seller insisted he could get the same price as his neighbor.
Be aware that often it doesn't matter to the real estate agent if your overpriced listing ever sells.

It's Free Advertising for the Agent

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

If the home is located on a major street, all the better. 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's not costing that agent one thin dime to leave it there.

Agents Find Buyers Through Listings

  • 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, providing the buyer is not already working with another agent.
  • Open houses: Agents can hold an open house and find buyers that way as well. If the buyer isn't interested in the home — and once they find out the price they won't be — the agent is then free to show the buyer other homes.
  • Newspaper ads: An agent with an overpriced listing often won't 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 worth what the seller is asking and she's off and running into escrow on another transaction. Not yours.

Agents Hope for a Price Reduction

Even if an agent knows she is taking an overpriced listing, she might be telling herself that when the home doesn't sell within a few weeks, she can persuade the seller to lower the price and then earn a commission when it sells. Except that studies show that 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 there is something wrong with a home that doesn't sell right away or worry the seller 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.

Choose your agent based on honesty, ethics, experience, competence and marketing, and don't chase after those tossing around pie-in-the-sky numbers.