Real estate agents should offer objectivity, reality to sellers

There’s a home in our neighborhood that’s been listed for sale for more than two years. The three-bedroom, two-bath Craftsman is not a dump in need of countless repairs, nor does it have a number of mysterious liens. It is not inhabited by reported ghosts or stigmatized in any known way.

The home has not sold because it is priced over $100,000 more than any comparable home in the area and its owner – a wealthy, out-of-state recluse who reportedly inherited the property – refuses to even consider an offer to purchase that is less than the asking price.

The home has become a topic of conversation, especially since sales and prices are on the uptick in the area. I mentioned that fact to the listing agent recently who immediately became defensive about the home’s history.

“Believe me, Tom, that certainly was not the price I suggested for that listing,” the agent said. “The asking price on that house is the owner’s price, not my price. In fact, when our office previewed the home, all of the agents came back with numbers at least $120,000 lower than that list price.”

My next statement left her wide-eyed and open mouthed, as if I had wrongfully accused her child of a crime.

“Then why did you accept the listing?”

The value of a real estate agent is constantly discussed – especially in neighborhoods where prices seem to be going up every day. While consumers often complain about commissions – even reduced commissions – I’ve always argued that agents usually are well worth their commissions. I’ve based a big part of that argument on the fact that agents produce an objective asking price, countering any random emotional, subjective number a seller has in mind.

For example, a seller often is convinced that a custom remodel has added immense value to the home. In reality, the work actually moved the price of the house out of the norm for the neighborhood. In addition, the seller will then point out that friends a few blocks over in a more desirable neighborhood had sold their flawless home for a huge gain, influencing the seller’s price. Setting a price at an unrealistic level simply eliminates a large group of buyers who don’t want to overpay for the most expensive house on the block and the fatter mortgage payments that come with it.

Too many agents, however, are simply willing to try listing a home at a hugely inflated price and “then reducing it if it doesn’t sell.” They realize the remote possibility of a financial windfall if a buyer arrives from Beverly Hills with a suitcase full of cash for any home in a particular school district. The feeling is “somebody is going to list the property, so it might as well be me.”

In a typical residential transaction, the selling broker receives a three-percent commission on the sales price and the listing broker receives three percent when it closes escrow. (Years ago, the selling side received two-thirds; the listing side one-third). Some traditional companies have reduced their commissions, others introduced a “discounted fee” structure while a few have gone to a “menu” or “a la carte” system. By law, all commissions are negotiable in the U.S.

Parallel to succumbing to a seller’s inflated asking price is the practice of “buying a listing.” This occurs when an agent deliberately prices a home higher than anybody else, hoping to impress the owner and get the listing. It’s human nature: some sellers are impressed by big numbers rather than realistic ones.

A few years ago, an investor specializing in flipping rental properties, contacted a local office about representing his portfolio in the area. When the broker previewed the investor’s first offering, she rejected the home because the investor required a 60-day listing and an asking price $65,000 more than agents in her office felt the market would bear. The home was eventually listed by another company but the initial agent’s call proved correct. The home sat on the market for eight months with little activity before selling for $5,000 more than the initial agent predicted. Big price. Poor design. No takers.

Granted, there should be some room to negotiate a listing price between what the seller expects and the agent’s market data. Yet let’s be realistic with the fudge factor – $100,000 is off the charts.