A recent sale of Riverside waterfront property saw $3M+ left on the table.
There is the price you can get in the first few weeks of your listing, and there’s the price you get after sitting on the market for months and years.
A Greenwich seller has left $3,100,000 “on the table”. He was offered $9,600,000 two years ago, turned it down, and ended up accepting approximately $6,500,000 last week. It’s a classic case, not at all unusual in our market. In fact, the next example is likely right around the corner!
Here’s how it works (every single time):
- Seller over-prices property.
- Seller turns down early offers.
- Seller waits months, possibly years, hoping to hear those offers again.
It’s such a common scenario that one can only conclude that this behavior pattern is built into our DNA.
Will you fall into this trap when it’s time to sell? Yes, you will. What about brokers? Surely they are experienced enough to avoid such foolish behavior when they list their own property, no? No. Brokers are even worse!
At any given time, the Greenwich market contains a dozen or so broker-owned properties that are for sale and they are almost always over-priced. And they sit, and they sit, and then? They sit some more. Experienced brokers commit the same error that they (presumably) have warned their clients of.
Remember that book Freakonomics? It is full of interesting, useful, surprising facts about human behavior, but I had to laugh at the section devoted to real estate. According to the authors, real estate agents deliberately price your property low so it will sell quickly (oh no!), whereas, when they go to sell their own properties, they price them higher (gasp!). This hideous crime was apparently revealed by the authors’ study of real estate sales statistics in the Chicago area.
Maybe there’s a different type of human in Illinois, but here in CT, while it’s certainly true that brokers price their homes higher, it is also true that the market punishes them just as severely.
The corrosive effect of sitting on the market for months and years is so obvious, so proven, it is a wonder to me that professional appraisers still don’t acknowledge it in their reports.
So here’s my ground-breaking proposal: Every real estate appraisal should come with two prices, the “early” price and the “late” price.
A sample concluding sentence of an appraiser’s report might look like this:
Based upon recent and similar market transactions in the area, the market value of the subject is estimated to be in the $5,000,000 to $5,300,000 value range. In the event that the subject remains on the market for 6 or more months, the stated value range should be reduced by approximately 20%.*
This would at least put banks, lawyers, and estates on notice. Heck, it might even end up influencing the behavior of sellers and brokers!
* That 20% drop is only the beginning, of course. After a year or two, your value can easily drop a total of 40-50%!