Last week I wrote an offer for clients that was more than one million dollars over the list price. Yes you heard that right – and they didn’t get it! Out of 14 offers, theirs was number 3. How did we get to this point in San Francisco? I had previously heard of one or two properties selling for more than a million dollars over the list price but those were notable exceptions. However, this experience tells me that it might not be so unusual after all.
The property was a 2-unit building that included a renovated 2880 square foot 3-bedroom home upstairs, and a 1285 square foot 2-bedroom unit below. It was “listed low” at $4,195,000, as comparable sales for this property (“comps”) revealed. The listing agent, when asked where he thought it would sell, gave a price per square foot number that would put the building price easily over $5M (price “per square foot” is the home price divided by the size of the unit, a measure used in the industry to give a rough idea of pricing that corrects for size). If that were the case, why then did he list it for $4,195,000?
The obvious answer is to stir up a lot of interest, which he did. He claimed that he originally wanted to list it higher but his sellers wanted this lower price. Some people justify this approach in a hot market because potential buyers have not made the mental adjustment to a higher-priced home that they could possibly afford. So a lot of people come to look at the house who are not really looking in that range. For my part, I don’t enjoy being in this market where I advise my client that they are going to have to go in over asking, and let them decide what they can afford (and the final decision is always theirs and I advise them not to do anything they can’t afford or might regret).
Did the sellers get a good result? Yes. After listing at $4.2M they received even more than my clients’ $5.3M third-place offer. One wonders though: If the agent had listed the property closer to value, what would it have sold for? We’ll never know that but what we do know is that 13 groups of buyers were disappointed, and some heartbroken. I think this hurts the real estate community’s reputation for credibility, and over time some buyers will give up, which I have learned from conversations with colleagues is already happening.
I would like to see realtors get back to listing properties for what they are actually worth. If everyone did this, we could get back to a more reasonable market where buyers are making offers on properties they can actually afford. In my recent example, there were buyers who thought they could get the property for $4,195,000. As one realtor recently said about this exuberant overactive market, “This is not going to end well.”
The challenge as a realtor who wants to list a property at its value is that if everyone has listed low, it makes your property look overpriced. Therefore, I encourage my colleagues to return to pricing properties that reflect their true value. If this is done, buyers won’t have to guess as to what they should offer. If there is interest by more than one buyer, then it may very well go over the list price but at least the buyers making offers will actually be within the group who can afford it. For my recent listings, the properties have sold for on average 2% above the listing price, which reflects my more realistic approach that still serves the sellers well!