To Secure the Listing and Blow Away the Competition
Sometimes It's a Deliberate Lie.
As the seller interviews each agent, often the estimate of value creeps upward. Maybe the first agent knows there will be two other agents competing for the listing, so the first agent names an astronomical figure. The second agent, upon hearing the first agent's price, beats it. The third agent comes in higher yet.
A seller who chooses an agent based on which estimate is highest can oftentimes become the ultimate loser….but it is human nature to choose the agent who says they can fetch the highest price.
Almost every seller operates in this manner. To the defense of the Agent, sometimes they just “Don’t know what they don’t know”. The traditional approach to valuation can sometimes leave an agent scratching their head when no comparable homes have sold recently. The agent is forced to utilize radically different homes in varying locations and attempt to justify the differences in value.
Sometimes the Seller has Unreasonable Expectations.
This still doesn't excuse the agent from explaining how a home is valued A home came on the market on a storybook street in a desirable area of Mystic, but it was priced $100,000 too high. When asked why, the agent replied, "I know it's overpriced, but I would have lost the listing to somebody else if I didn't agree to that price." Turns out a home two doors down sold for a high figure, but that home had been meticulously maintained, and it boasted a newly remodeled kitchen with top-of-the-line appliances. By comparison, this home was a fixer, but the seller insisted he could get the same price as his neighbor.
Free Advertising for the Agent
Every "For Sale" sign advertises the agent's company and the agent. Many signs contain the agent's Web site and cell phone number. Some even sport a large color photograph of the real estate agent.
Think of it as a giant billboard for the agent.
If the home is located on a major thoroughfare, all the better. Probably thousands of drivers pass the sign each day and will see that agent's name. And after the signpost is in the ground, it's not costing that agent one thin dime to leave it there.
Agents Find Buyers Through Listings
If a buyer wants to find out the price of a home, typically they will call the agent's cell phone number and ask. Agents who are on the ball will try to recruit that buyer to work with them, providing the buyer is not already working with another agent.
Moreover, agents can hold an open house and find buyers that way as well. If the buyer is not interested in the home -- and once they find out the price they won't be -- the agent is then free to show the buyer other homes.
An agent with an overpriced listing often won't put the address in the paper but will list the details along with the price. That way, buyers who can afford to pay that amount will call to inquire. Now, all an agent has to do is suggest other homes in that particular price range that are worth what the seller is asking and she's off and running into escrow on another transaction. Not yours.
Real Estate Agents Hope for a Price Reduction
Even if an agent knows she is taking an overpriced listing, she might be telling herself that when the home doesn't sell within a few weeks, she can persuade the seller to lower the price and then earn a commission when it sells. So she justifies her actions and accepts the listing. Except that studies show that interest in a home typically wanes after a few weeks, so there are fewer buyers for that home when the price falls. Buyers also think there is something wrong with a home that doesn't sell right away or they worry the seller dropped the price because a major defect was discovered. Price reductions hurt. They hurt the seller, and they often make a buyer wonder how much lower the price could drop. So, a buyer will often offer even less after a price reduction.
Conclusion: Choose your agent based on honesty, ethics, experience, competence, and marketing, and don't chase after those tossing around pie-in-the-sky numbers.