The most common phrase I’ve used lately when showing property seems to be, "Its priced too high." When I talk to listing agents about one of their listings I want to show but think is priced to high, they often agree in a ‘wink, wink, nod, nod’ way. A telling question I often ask is, "Is this your price or the seller’s price", and in almost every case its the seller’s price. Another request, which is often telling about the listing agent support of the price, is to ask the listing agent for comps to support the price. For most of these overpriced listings, they can’t.
Then they ALWAYS say, "Please show the house. Please bring an offer and I think we can make a deal."
So I show the overpriced house. The buyer falls in love with it. I bring an offer well within what I consider a supportable price range. Possibly at the low end of that range, so there’s some room to move up. But certainly not in the ‘bargain hunting, bottom feeding’ category.
But no matter how much listing agents encourage offers, it just isn’t working a lot of the time. In fact, its often backfiring. Sellers often get angry or offended at the ‘low’ offer, rather than being appreciative that there’s a buyer interested in their property that’s been on the market for 6 months or a year. Buyers are often frustrated and disappointed, because there’s a house they like but they’re loathe to pay over fair market or appraised value.
I feel like a killjoy or spoilsport because I’m the one often saying to the buyers, "I think the price is supportable in this range, but anything above that, I just don’t see it." Buyers are in a difficult position. They’re in a situation where the seller won’t move below "X" dollars, but I’m telling them that I don’t think the house is worth more than "Y" dollars.
This probably sums up one of the major differences between being a buyer agent and a more traditional seller’s agent. I’ll tell buyers my thoughts on price, share comps with them, and tell them – ahead of time, when we’re in the bidding process, whether I think we might face an appraisal shortfall. Seller’s agents, for the most part, don’t. If they sense a house might appraise light, they don’t typically bring that up to the buyer during the offer process. Buyer and seller agree on a price, and lo and behold, 6 or 8 weeks later when the appraisal is done it comes up short. Sometimes lately, WAY short. If the appraisal gap is less than 5%, buyers may be willing to bridge it. But if its more than 5%, in many cases they’re not. Without a major price reduction from the sellers, the deal falls apart.
I’m very proud to say I haven’t had one deal fall apart this year due to an appraisal shortfall. I’ve had a couple of short appraisals, but in those cases I had already prepped the buyers for that possibility, as well as told the seller’s agent, from the get go, that we’ll likely have an appraisal problem and to expect some price renegotiation in the event of a large shortfall.
I’m always struck at how often things come as a ‘surprise’ to sellers and their agents. In trial law, the common wisdom is that you never call a witness unless you know all the questions and the answers. No surprises on the witness stand. Yet houses are trotted out to market like unvetted witnesses. The buyer does a septic test and the septic fails. The buyer does a water test and the water fails. The real estate equivalent of "Duh" is the typical response from a seller or their agent. Why don’t seller agents encourage sellers to vet their houses BEFORE putting them on the market — have the septic pumped, the water tested and any major repair items identified. Likewise, an unanticipated appraisal shortfall should be very rare.
I’m getting a little gun shy. And listing agent cries of "Show the house and bring an offer" are starting to sound a little like crying wolf. I particularly notice when a house has been on the market for longer than 6 months, and there have been no reductions in the asking price. That does not indicate a motivated seller. The possibility of being able to do a deal within a realistic range for a house may be little more than wishful thinking on the part of the seller’s agent.