Listing Prices & "Leaving Room to Negotiate"

No Discount on This One

In a Buyer's market like today's, it's not unusual for gun-shy Sellers to want to "pad" their initial asking price.

Their rationale?

No matter where they set their initial asking price, aggressive Buyers are simply going to discount further from there.

So, why not pick a listing price that "leaves a little room to negotiate?"

There are three reasons that's not a good idea:

One. Self-selected peer group.

If you set your price too high, your home will be compared to more impressive homes asking the same price. And found wanting.

So, yes, you may have "left yourself room to negotiate."

But that hardly matters if there aren't any offers (or even showings).

Two. Even in a Buyer's market, well-priced homes can sell quickly, for above asking price.

Case in point: 5035 Glenwood Ave. (pictured above) in Golden Valley.

Listed in late March for $289,000, it sold -- in multiple offers -- the first week.

Ultimate selling price: $305,000.

Three. No Realtor can promise their client that they won't receive lowball offers (for all I know, the owner of 5035 Glenwood received lowball offers, too).

But lowball offers are a lot easier to repel when there is also a full-price offer -- or even better, multiple offers above list price -- on the table.

For Sellers, negotiating leverage is all about how many prospective Buyers are interested in your home.

If you price too high, the answer is usually few . . . or none.

P.S.: another fringe benefit of pricing well, and attracting broad interest: Buyers tend to pull their punches when it comes to negotiating any inspection issues.

Deep Discount in South Tyrol Hills

50% Off Original Ask

There may be another home in the Twin Cities that's been on the market longer, or has been discounted more from its original asking price than this one.

But if so, I'm not aware of it.

Originally listed at $1.395M in September, 2007 (yes, that's 32 months ago!), this postcard-pretty 1937 home -- located in Golden Valley's South Tyrol Hills neighborhood -- is now asking $699.5k.

Now that's patience (or stubbornness).

So, is it finally a bargain?

Who wants to know??

Ignoring the Asking Price

Mispriced Properties: Exhibit A

Where: 46xx 1st Ave. South in Minneapolis

What: Bank-owned (foreclosure) 3 BR/2 BA 1917 stucco home with 2,000 square feet.

How (much): asking price -- $72,900; sold price -- $130,000

When: listed -- 4/19/2009; closed --8/18/2009

In my post yesterday (Seller's Motivation: Is it Relevant?"), I made the case that the Seller's motivation (usually) isn't nearly as important as most prospective Buyers think it is.

Often times, neither is the Seller's asking price.

At one extreme, Banks selling foreclosures have been known to price ridiculously low to foment bidding wars (at least, you'd assume it was purposeful; the other alternative is that they truly have no clue. Hmm . . . ). See Exhibit A (above).

At the other extreme, lots of Sellers today have been known to pick asking prices that reflect, shall we say, "wishful thinking."

Either they've been in their home for decades, and are genuinely oblivious to how dated it has become, or, they feel the need to "pad" their asking price, to give themselves "negotiating leverage."

Unfortunately, that's not how it works.

Realtors (and appraisers) know that home prices are set exactly one way: by identifying the 3 best Comp's (similar, nearby homes that have sold the most recently), then doing a detailed compare-and-contrast between the subject home and each of the Comp's to arrive at an adjusted value.

Now that's a Discount!

Was: $1.5 Million; Now: $599k

Where: 142xx Trace Ridge Road in Minnetonka, just west of 484

What: 4 BR/5 BA with 4,650 square feet on a .79 acre lot

How (much): list price is $599k

When: originally listed at $1.5 million in 2005

Who: co-listed by Mark Jelinek and Michael Mohs of Edina Realty (Mark is a colleague in the City Lakes office)

There may be a home on the market in the Twin Cities that's listed at a lower percentage of its tax assessed value (47%) or at a deeper discount from its original asking price (more than 60% off) -- but I'm not personally aware of it.

Two caveats for prospective Buyers:

One. It's a short sale. That means one or more banks have to agree to reduce the mortgage(s) on the home.

Short sales can be a long shot (sorry, bad pun), but if the listing agent has lots of experience dealing with them (Mark does) . . . the odds go up considerably.

Two. At least until a lower purchase price knocks down the annual property taxes, the current tax bill is a whopper (over $16k, about double what would typically go with a $600k house).