Valuation of Property Handling Seller Opposition to List Price
Many have viewed my recent post on real estate data and some have privately asked about the months of inventory category. So the following is the story about a listing appointment we had recently.
A BTS (Behind the Scenes) look into our recent listing appointment with a potential seller that had some push-back to the list price and how we “sealed the deal”!
Seller: “I want to list the property high so they can lower the price if necessary.
Listing Broker(MAW): “That is not the best strategy to get your house sold.
Listing Broker(MAW): “Buyers establish what a house is worth – that is what drives the market more than the agent, appraiser, sellers, Zillow, friends or so-called experts because a house is only worth what a buyer will pay for it”. I then asked the seller if they know the difference between the seller and buyers’ market? The seller said they believe they have an understanding but asked me to give my definition. I told the seller the market is defined by something called ‘absorption rate’.
Seller: “What is that?”
Listing Broker(MAW): “It’s viewed as a measure of how fast or slow inventory is moving in a particular area over a specific time frame.” I provided an example stating, “10,000 homes sold in a region during the prior 12-month period and market data says there are currently 2000 homes actively on the market for sale in that region, the turn-over is 5.0 (10,000 divided by 2,000) which would be the turn over meaning the active homes would turn five times over that that period. If we divide twelve by the turn over rate of 5 it will give us 2.4 months of inventory for that region in terms of annual absorption broken down to months of inventory. Monthly absorption is simply the number of active listings in inventory over a 30 day period divided by the number of closed sales, so if there are 30 homes active in a neighborhood and 10 homes sold, there would be 30% absorption thus considered a seller’s market because the proportion of active listings is twice as high as closed sales.
Seller: “What does that mean?”
Listing Broker(MAW): ” The high rate of absorption in the area market suggests a limited amount of inventory. Rates above 20% suggest a seller’s market, below 15% a buyer’s market. So it would be in their best interest to list below market.
Listing Broker(MAW): “If you list high, the buyer or their agent will use your property as the basis to place offers on properties at a lower listed price.”. I further consulted by saying “the key is to get as many buyers interested in your property as possible to generate high demand and interest to the point it will drive multiple offers much higher than asking.”
Seller: He looked at me for about 10 seconds and said, “you know…that makes sense.” Seller asked, have any of your client’s recently listed low and sold high?”
Listing Broker(MAW): “Yes. A very savvy and seasoned investor client of ours did just that and got $20K over asking.”
Seller: “Lets’ get the listing agreement signed.
Just one example of how the GRG Team approaches seller objections to pricing strategies while providing our clients with valuable industry information so they can make an informed decision that best suits their goals and objectives!