The Three Prices

There are only three prices in real estate. But every so often an agent will try to find a new one! The three prices are:
1) Wholesale Price- the price you will get if you have to sell “yesterday” or for some other reason such as to pay medical bills, avoid foreclosure, access equity, etc. This is the price you might receive when you must sell now. It is usually below market by 10% to 25%.
2) Market Price- the price you will get if you and a buyer reach an accord without either party being subject to outside influences that affect the purchase or sale. This price reflects as close as possible the current market value of a property and is usually reached (on average) in current market time.
3) Above Market Price- sometimes referred to as “what the seller wants” to receive for his property, but also what unskilled agents promise a seller in order to get the listing. The farther above the current market price, the longer the typical time before an offer might be received at this price, if ever. If the seller can wait for the market to eventually climb to this price or, in some happy circumstances, a buyer is found who is so emotionally attached to the property that they are wiiling to pay extra to ensure that they get it, things work out. But usually an excessively high price results in a lack of activity and no offers which forces the seller to lower the price.
The difference between all these prices is time and money. Very often in real estate, time is money. The sooner you need to sell, the more you likely will have to discount your property. The sooner you need to buy, the less selection you may have and the more likely you will pay Market Price, or more, for a property. Conversely, pricing your property above market in any market except a rising one usually costs you twice. Once when you lower the price to what was the Market Price when you originally listed and then again to get it to where the market is currently. Pricing above market wastes time which is money!
Then there’s the new wrinkle some agents are employing in today’s market. I’ve seen this technique more and more frequently of late and in all price tiers of the market. Sometimes it is used to sell a foreclosed home or one that is about to go to a trustee’s sale (auction). Sometimes it is used when a property has gotten stale from being on the market a long time at an Above Market Price. But I am also seeing it employed to sell new listings and properties that are not even under water! What I am describing is the pricing of a home way below market price and setting a deadline (usually a few weeks in the future) for offers to be received and presented to the seller. What transpires is basically a feeding frenzy! The seller hopes that the below market price will generate multiple offers and the ensuing competition will bring a much higher price in a very short time. Ideally a seller could get a price that is close to market value in a lot less than market time.
Does this technique work? Sometimes. But usually not without some tradeoffs. You get all kinds of buyers and “tire-kickers” through your home. As a seller you must be prepared for offers that fall way short of your target and you must be prepared to say “No” to these offers if they cannot be negotiated up to meet your price and terms. You must be prepared to wait the market out if necessary because a lot of activity doesn’t always generate a lot of quality offers.
The best technique to sell a property remains to price it as close to the actual market value as possible. Buyers are so savvy these days and see so many properties that they recognize a reasonable, win-win price and a good value when they see it. They also are quick to recognize prices that are unreasonably high, casually and quietly writing these homes off their list of possible purchases. Serious buyers can easily sense a price that is too good to be true and automatically get their guard up. In addition, while they may be the perfect buyer for a home, they may want to avoid a “gunfight” over price or need some time to sell another home and feel that the low priced seller will not be receptive to a contingent offer.