What does a listing agent do? This reader wants to know how listing agents generate interest in a property and if it benefits the home buyer or home seller.
Q: In the Washington, D.C. real estate market, it’s common for real estate agents to price a listing low in order to generate the maximum number of offers for a quick sale. This clearly benefits both the agent and the buyer.
When I’ve asked about it, I’ve been told that the rationale behind this process is that the number of days the listing stays on the market is critical to the valuation eventually assigned to the property.
This sounds like a crock to me, and I don’t think has anything to do with estimating the fair market value of the property. I think this is an agent-created plan but I don’t think it benefits the seller at all.
Selling houses that spend either “zero” or a single day on the market happens all the time. What I describe is probably the “third rail” for real estate writers but I’d like your take on it.
What Does a Listing Agent Do?
A: We have been writing about real estate for more than 25 years. During that time (and through all sorts of markets), we have seen various methods listing agents have used to market and sell their listings, including listing agents try to sell homes before those homes have actually been listed for sale (also known as a “pocket listing”).
Listing brokers we’ve spoken with have described this process as helping to gauge and create interest in the home. What it basically serves to do is give the buyers working with the other agents in the office first crack at buying the home before it hits the market.
Who does this really help? Primarily, the listing broker, who is hoping to sell the property to his or her own buyer, or maybe the buyer of an agent in his or her own office. But it doesn’t seem to give sellers access to the largest number of buyers at the point when the listing is the freshest, which might generate more competition, additional offers and, perhaps, a higher sales price.
What Happens When a Listing Agent Prices a Property Too High?
On the other hand, we’ve seen circumstances in which a listing broker has made a good faith attempt to price a home – but has priced it too high. When the home goes on the market and it’s priced above the market, the home may not get much attention, with only a few showings and no offers. Later, when the listing broker, with the seller’s agreement, lowers the price, the home now shows a price reduction. With increased use of the web and online services, a drop in the price of the home early in the home selling process might transmit a negative impression of the property unnecessarily.
Knowledge is power in any deal. With so much information available to them, buyers can easily find out how long a property has been listed, when price drops occurred, and other details that could affect the marketability of the property. Consider that many home listing sites now show the price that the home was sold at years ago and how often it has come on the market, in addition to any reductions in price during the listing period. The appearance of the price reduction would give an indication to buyers, whether expressly or implied, that the home was overpriced. Potential buyers may infer further price reductions will be forthcoming.
So, yes. Pocket listings often benefit the broker first and their buyers second. And, pricing a property extremely competitively – what you referred to as “low” – should generate a quick offer. But if the seller has agreed to the pricing (which usually happens) and the property sells quickly, that could be a good tradeoff. There is value to selling at speed.
Readers, what do you think? We’ll post your comments in a future column.