My Thoughts on Overpriced Listings
I’m going to start this article with two brief stories, then summarize my point about overpriced listings at the end.
My First Listing Ever
I accidentally underpriced the first multifamily listing I ever procured.
In fairness, it was a tough one to figure out. The property was a castle converted into multifamily. When I say castle, I mean that literally. Here’s a photo of the property.
It was originally built as a school so the layout was far from typical. It was also located in a rural town in South Dakota with a population of 3,000.
Knowing it was a unique property, and figuring it would be difficult to sell, I underwrote it conservatively. Too conservatively, as it turned out.
I priced it at $1.1M and it immediately received a ton of attention. Nearly every buyer I called was interested after learning the asking price. Within a week, I was busy with tours. And within two weeks, we had four solid offers.
We set a call for offers date, and let buyers know the competition was steep. The bidding process drove the price up and the deal ended up closing at $1.3M, 18% over the listing price.
My Second Listing Ever
A few months after successfully closing my first deal, I found my next listing opportunity.
Filled with confidence from my first deal, I priced this listing much more aggressively.
And why not? This property was actually built as apartments. It was located in a city of 100,000 people. Surely the buyer pool would be even more robust than my first listing. I expected this deal to fly off the shelf.
Didn’t happen.
It was like banging my head against the wall. Every buyer I talked to seemingly lost interest as soon as I mentioned the asking price. I had to beg, borrow, and steal just to book a single tour.
I did end up procuring one offer, but it was 24% below asking price. In hindsight, that was actually a solid offer, we were just asking way too much.
I tried to backpedal with my seller and explain that we missed the mark and we would need a reduction to get the asset sold. But he didn’t move. His expectations had been anchored at an unrealistic price.
The result? He still owns the property all these years later.
What’s the Point?
Why am I sharing these two stories about when I was an inexperienced broker?
Because I learned early in my career that overpricing a listing benefits no one.
If a listing is appropriately marketed, the market dictates the price of an asset. Not the seller. Not the broker.
I’ve found that listings at a fair market price get the best results.
I obviously do not recommend intentionally underpricing a property. I want to help my clients get the best price possible. But if you do misprice an asset, the market is much more forgiving of underpriced deals than overpriced ones. If you’re going to miss, miss low.
I’ve come to consider overpricing listings as the absolute worst strategy. The best buyers can determine if an asking price is within range before deciding if it is worth digging into the details. Overpriced deals quickly get dismissed. Then we’re left with a smaller buyer pool filled with less qualified investors.
So let’s not waste our time. Let’s price properties correctly and let the market do its work.
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