All this week, I will be publishing my five key takeaways from the new book Zillow Talk: The New Rules of Real Estate by Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries.  You can read my review of the book at Inman News here, and the rest of the “five takeaways” here. 

One of the most difficult challenges real estate agents face in pricing a home is overcoming the suspicion sellers have that the agent wants to lowball the price to get the home sold as quickly as possible.  That’s why I always coach agents to think of themselves as the “weatherman,” not taking responsibility for the price but simply helping the seller understand the pricing environment in the local market.

That is, you’re much better off figuring out the price collaboratively with the seller after reviewing all the solds (and unsolds) in the market, than simply announcing to the seller that “I’m the expert, and here is the price I recommend.”  Why? Because sellers generally don’t trust agents on price.

It’s an understandable suspicion, but I think it’s mostly unfounded. I’ve worked with lots and lots of agents in my career, and my experience is that most agents simply want to price the home to the market, rather than lowball the seller to get a quick sale.  The challenge is getting sellers to understand the realities of the market, so that they don’t overprice the home and end up costing themselves time and money.

Now, Rascoff and Humphries book Zillow Talk: The New Rules of Real Estate gives agents a new discussion point for helping sellers understand why it’s so important to price a home to the market.  They crunched the data on more than  million homes for sale and found an interesting correlation between initial pricing and final sale – namely, that sellers who overprice their home ultimately get less for their home than sellers who price to the market:

The data tells us that when a listing is overpriced, it tends to sell for less than its estimated market value. In fact, the more a home is overpriced, and the larger the price cut it needs to sell, the bigger the impact on the final sale price. . . .

Just like on our favorite game show, [] there’s a big reward for those who resist the urge to overprice.  When contestants on The Price is Right guess the exact retail price of an item, they receive a bonus prize.  And in real estate, sellers who price their home at the real, fair market value tend not only to sell faster, but also to sell for 2 percent more than their home is worth.

(Page 136, emphasis in original).

In other words, the people that overprice their home tend to get less than their expected market value, and the people that price their home to the market get more than their expected market value.  Why is that?  Rascoff and Humphries don’t speculate too much, other than to point out the stress and anxiety associated with having an  overpriced home on the market and having to make price reductions.  I would add that I believe that when a property hits the market at the actual market price, it tends to attract a lot of quick attention because it is perceived as a deal by the existing buyer population that is used to seeing homes of similar caliber priced at 5-10% higher levels.  So those buyers swoop in with excitement, creating the potential for a bidding war.  And then once buyers are in a bidding war, they are much more likely to get psychologically invested in a property and become willing to overbid the market price to make sure they get the home.  That’s why you price to market, to foster that kind of frenzy.

In my review of Zillow Talk at Inman News, I joke that real estate agents should tear out that Chapter 15 of the book and just give it to their overpriced sellers.  But it’s no joke. Overpricing a home does in fact cost sellers money.  Agents have always thought that, and they’ve always said that.  Now they have data to back it up.

Zillow Talk: The New Rules of Real Estate – Takeaway #1

Zillow Talk: The New Rules of Real Estate – Takeaway #2

Zillow Talk: The New Rules of Real Estate – Takeaway #3