Real estate agents under quoting to buyers during the boom has been rampant. Now as the market consolidates, sellers need to be wary of agents over quoting.
Over quoting is when the agent inflates the suggested selling price as a tactic to win the listing. Real estate sales is an extremely competitive game. The height of that competition is for exclusive listing rights.Home sellers are well advised to avoid selecting their selling agent on the price the agent quotes.
Home sellers that openly select their agent on price inadvertently create a bidding war amongst the agents.Some agents become vague and speculative in their assessment of value.
Statements and/or promises such as ‘I think we can get up to’ or ‘at an auction, who knows, the price could even reach….’ and the old chestnut ‘we have a cashed up buyer that only wants to deal with our office, but they will pay above market price for your home.’
All of these comments can create a feel good atmosphere at the time of listing. But if the promises cannot be executed by the agent once the home hits the market, the campaign can quickly deteriorate.
Two great dangers in over quoting
There are two great risks in an agent that over quotes. Many home sellers only learn about the downside of an over quoting agent when it’s too late.
The first danger is the seller purchases another property before they have sold their existing dwelling. They purchase on the basis of the inflated price guide on the existing home, a price they are soon to realise is unattainable on the open market. This scenario is common. Those that have been through this process are often left financially compromised and emotionally drained.
To buy for $2 million, thinking you can sell for $1 million (or ‘more at auction’) but only achieve $880,000 creates a devastating black hole in the budget. There have been recent examples of people selling for $500,000 less than the agent quoted them. They have sold for so much less because they had too, they had committed elsewhere.
As an initial safety measure, if you are purchasing a house from an agent before you have sold, ensure that you get multiple appraisals from agents and/or an independent valuation. Quite simply, there is a conflict of interest for an agent to appraise your existing dwelling whilst selling you a home at the same time.
If you are happy with that agent, it’s okay to award them the listing at a later date. But, do not purchase solely on their word in terms of the value of your existing dwelling.
The second danger in an over quoting agent is the fact the sales campaign will fail and the home will languish on the market. Now that auction clearance rates have fallen from 85% to 60% (if not lower), the market is clearly saying it won’t over pay anymore.
4 out of 10 people that go to auction expecting a ‘bidding war’ on their home are failing to sell – never mind the promised bidding war that didn’t eventuate.
If your agent has over quoted, the chances of a failed campaign are near certain in the current market.
As the home languishes, the best buyers in the market-place become spooked. ‘Why hasn’t it sold?’, ‘I wonder what’s wrong with it, the owners are greedy’ and on it goes.
There is one type of buyer that is more than happy to make an offer on a stale listing – bargain hunters.
Picture the scenario. Agent over quotes the selling price – sellers then buy elsewhere, now must sell – campaign fails – bargain hunter is the only person to make an offer.
Yes, the stakes are high when you call an agent in to appraise your home. Higher than many people realise at first.
Now that you are conscious of the danger in an over quoting agent, it’s best to take affirmative action to protect yourself against it.
First, have the agent guarantee the price they quote. Say something like, ‘before you provide us with your price, we would like you to know that we expect you to guarantee it.If it sells below the lowest price point you tell us today, we are free of any obligation to pay you commission.
Second, whatever price the agent quotes, it must be backed by logic and evidence. If the agent cannot explain and justify the price to the seller, they are no chance of doing so with a buyer in the heat of battle.
Third, focus on what the agent will do to achieve the price if granted the listing. Quoting a high price is easy. Achieving a high price takes skill, strategy and resilience.
Ask the tough questions before you sign,not after, when it’s too late.
Fourth, never tell the agent what you think the home is worth or what you would like. The agent is there to price the home. Many agent’s pricing strategy is to elicit the owner’s price expectation and feed it back to them as an appraisal.
Nothing improves value like ownership. Therefore, the owner is not the right person to lead the charge on the value question.
Lastly, follow the market. An agent may have told you a high price in June/July 2015 when the market was at its peak. But is that price still relevant?
In fairness to agents, the market has come off a bit during spring. If your last appraisal was more than 3 months ago, you should call the agent back in to get an update, before you purchase elsewhere.