realtor manipulations: using WTF priced houses to make others look reasonable
Have you ever gone into a high-end retail store to look at a sale item advertized at 50% off? When you see the asking price you think to yourself, 50% off a WTF asking price is still way, way too high, right? realtors play that game too. And what’s really shocking is that they openly admit it. They actually admit to manipulating buyers with false comparables to convince buyers outrageous house prices are reasonable. What do you expect from a profession that trains its salespeople at the Gap?
Real estate agents are using overpriced properties as negative examples to sell similar homes with lower asking prices.
WASHINGTON — In the real estate brokerage field they’re often known as “setups” or “pinball” homes, and this spring’s improving conditions in some markets could be stimulating more of them.
A setup or pinball property is a house listed with an unrealistically high asking price that pulls in lots of visits by agents and shoppers, but no offers.
Any seller who hasn’t gotten any offers over the last three months is a pinball. Their WTF asking prices pollute the MLS, and any showings they get are mostly to show buyers how much more they get for their money on another property.
The problem is this: Real estate agents, including even the listing agent, are using the overpriced house as a negative example to sell similar homes in the area that carry lower asking prices.
“It’s like a pinball machine,” said Debbie Cook, an agent with Long & Foster Real Estate in Silver Spring, Md. The “setup” is the foil — the house that agents show clients to make other, more realistically priced listings look better.
So why do sellers put up with this?
Maybe the sellers — encouraged by reports of rising sales and low mortgage rates — insisted on the aggressive asking price and wouldn’t list for anything less.
Delusion? Every owner thinks their properties are worth more than comparable properties. Because their home appeals to them, most sellers reason it must appeal to everyone else as well. It doesn’t work that way. Plus, most sellers put on blinders when greed enters their thinking.
Or maybe the sellers’ agent, not wanting to lose the listing, didn’t fully brief them about what the house could command in today’s conditions.
Ore maybe the seller’s listing agent knowingly lied to get the listing knowing full well they were going to go back in 30 days and break the bad news to the seller that their dream home is not all they believe it to be. The listing often goes to the agent who most strokes the ego of the seller, or the agent most willing to put an embarrassing WTF asking price on a house without blushing. For many agents, promising an unrealistic selling price then going back for a realistic price reduction is their standard operating procedure. They see nothing wrong with it.
Whatever the specifics, such houses tend to see heavy foot traffic but go nowhere until the sellers drop the asking prices, usually by significant amounts. Before then, however, they may be used without the sellers’ knowledge to market other houses. Since no one seriously expects them to sell at their original asking price, agents are happy to exploit the overpricing to facilitate other sales.
Unscrupulous agents take advantage of seller’s delusions and greed and use their house as a prop to make another house look better. This makes agents look bad, and it makes sellers look bad.
“We’re definitely seeing it,” said Sandy Nichols Acevedo, an agent at Prudential California Realty in Oxnard. “Some people think they can go higher now because the market seems to be doing better.”
Greed and stupidity pretty much defines California real estate. And realtors certainly haven’t done anything to correct sellers misconceptions with their yearly bottom calling.
Joe Manausa, owner-broker at Century 21 First Realty in Tallahassee, Fla., who wrote about the phenomenon on Active Rain, a Seattle-based industry blog with more than 220,000 members, offers this hypothetical example: “If two very similar homes are near each other, with one priced at $250,000, and the other at $280,000, the higher-priced home is often shown first. Then the real estate agent says, ‘If you like this home at $280,000, you are going to love the home down the street at $250,000!‘”
Bill Gillhespy, an agent in Fort Myers Beach, Fla., has a real-life example: He has a listing on the 14th floor of a luxury condominium project overlooking the Gulf of Mexico. The asking price is $450,000. There’s a unit on the same floor with similar views, similar square footage and layout, but with a more updated decor, that is listed for nearly $150,000 more. When Gillhespy is asked by another agent or a prospective buyer to see his unit, he often says, “Let me first show you a unit just down the hall. It’s one of the nicest in the entire building.” The higher-priced model shows well, but shoppers immediately remark on the $150,000 difference “and they can’t see how it’s justified.”
It also does nothing to justify the price that is $150,000 lower, but stupid buyers don’t seem to understand that.
Perrin Cornell, a broker at Century 21 Exclusively in Wenatchee, Wash., says some sellers in the mid-to-upper price brackets in his area “are exuberant” that we’re finally out of the recession and are tempted to disregard agents’ more sobering recommendations on pricing.
It would be a great hidden camera show to invite agents over for a listing appointment and have a fake seller insist on an asking price more than double the market value just to see how agents react.
What happens to such listings? “Unless we’re using it for a setup,” Cornell said, “we stop showing it” until the seller agrees to lower the price to a sensible number.
But as a matter of principle and ethics, should realty agents accept listings from homeowners who refuse to listen to reason? Manausa is adamant that they should not.
“If you list a property at a price you know will not sell,” he said, “you are misleading the seller. Effectively you are saying, ‘I don’t think it will sell, but I’ll put my name on anything hoping to get paid.“
Yes, that’s exactly what agents are doing, and they don’t care! They have no ethics!
Acevedo agrees that agents have a fiduciary duty to educate even the most headstrong owners about sobering market realities, but has a compromise solution: Take the listing but require the seller to sign a contractual agreement requiring an automatic price reduction to a specified level if the house doesn’t sell in the first two to three weeks.
Bait and switch is the compromise solution? In the real world, no seller is going to sign an agreement with an automatic price reduction. The seller’s reaction would be to tell the agent to do a better job. The reason the house isn’t selling is due to the agent’s lousy marketing. Most often, sellers will cling to their WTF asking prices for 90 days, and they will let the listing expire. Wiser agents will wait and go after the expired listings. After the first agent fails, the seller is often more motivated to list at a reasonable price. Any listing that does not sell within 90 days is usually a WTF listing price, and the agent who expended time, effort, and advertising resources on a WTF listing price gets the nothing they deserve.
Bottom line here for owners thinking about selling in modestly improving markets: Get as much information as you can about sale prices of comparable houses in your area. Talk to multiple realty agents before listing. Sure, you can try pushing a little on price, but if you go overboard, you risk becoming the unwitting setup, the pinball, the out-of-touch competition everybody else loves to visit.
And if your really lucky, I may profile the house as a WTF asking price award winner.