Tim just posted an interesting set of stats on Redfin, titled Biggest Discounts, and one of them particularly caught my eye. His primary topic was the difference between Final Listing Price and Sold Price and how that varies by area. But what caught my eye was the final chart that showed discounts from Original Listing Price to Final Sale Price. This hit right on a topic I have been thinking about for some time, that I had mentally labeled the Disappointment Index. In a very real sense, it represents the difference between what a Seller hoped to get for their home, and what they actually got after perhaps many months and many price reductions.
Presumably a Seller, in consultation with their agent, has consciously decided what they want to ask, and get, for the property, and has some expectation that that might happen. So to the extent that they start with that expectation, then a subsequent completed sale for less is a disappointment. And a 15% disappointment on a $500,000 house would be a big disappointment – $75,000 not showing up in your bank account would be a very big disappointment indeed.
So here’s the question: why are these discounts so big?
Are the agents not able to estimate market value and expected selling price any better than that? Or are the Sellers not listening to their agents and overriding them?
At what point does the listing agent walk away and let the Seller find a more compliant agent to list the house at a visibly above-market price? Or does the agent take the listing and hope to work it down over a span of time, perhaps several months.
Maybe this Disappointment Index is higher right now because both Sellers and agents are having trouble adjusting to current prices levels that are significantly lower than a year or so ago. But it certainly does impede sales by leading to longer times on market, and lower buyer confidence in what the price really should be.
Totally Appreciated your insight! Pen to paper makes a HUGE impact! Would love to share with my Facebook friends and Tweeps!
I’m looking to sell my house and buy new, so I’m obviously sensitive to the price of what I get and give in the deal.
But it’s not just price that makes a house affordable. The 1st time buyers credit expires in November. In addition, rates could increase significantly in a very short time. It may not be worth waiting for lower prices if by the time you buy rates have gone up .50%.
So, if you are buying or selling, don’t wait too long … or the train may leave the station without you.
Amanda, delighted to have you share the info. Dustin has been having some trouble recent revisions to this blog site, so wasn’t sure you had gotten my earlier reply.
Best Regards,
Chuck
I wish there was a “negotiability index” included in the listing.
I can’t say why sellers continue to overprice their properties by such a large margin- I am sure everyone has their own reasons or motivations. But I can say as a buyer that I can afford to wait them out. So they are prolonging their pain by not adjusting their expectations up front and I think some sellers are missing out on getting any offers because of this.
There are several homes that I’d currently love to make an offer on, but since they are still priced at 2004-2005 levels (with no major improvements since the last sale either), they are clearly overpriced by about 10 – 15%. For all I know, the seller might be open to an offer that is that much lower than the asking price, but you can’t find out who is “firm” on their price or who is more open to negotiate. I don’t want to waste my time and energy making an offer when we are that far apart in price. My tactic has been to wait them out and let the passage of time wear them down. So far I haven’t bought a house, but nobody else has purchased my favorites either.
‘Disappointment index’ takes it from the seller’s and both agent’s perspective. How about ‘irrational asking price index’ or ‘good deal index’ from the buyer’s perspective?
it appears, to me, that sellers arent necessarily listening to their listing agents. i have been religiously watching the same target areas for two years, through the substantial decline, and i continue to see similar properties in tracts just come on the market at ridiculously inflated prices compared to recent comps. i would like to think that their realtor would obviously know better, so that leaves me to believe sellers are entering with overly high expectations.
What’s funny is a Title Rep sent me the Disappointment Index in a solicitation e-mail. Now that I know it came from redfin I’ll never contact or refer that Titlte Company again.
What the Index shows is how buyer’s agents don’t carry low offers and make a case for them. This thing about waiting for price reductions is nuts.
I have heard all the rational for why buyer’s agents refuse to do the job they are hired for, which is to negotiate a deal.
The point is, if a property is what a buyer is willing to pay, there should be thousands of low ball offers floating around.
David Losh-new to this website so just wondering about “Now that I know it came from redfin I’ll never contact or refer that Titlte Company again.”-
Please shed some light for me…..
Secretly David wears a Red Fin hat and T Shirt daily. He is a big fan.
We are all big fans of the rebate business model. There are millions and millions of dollars to be made by paying some one to use our services.
Just come in through the door, we will do it for less. Trust me, I’m on the internet.
You know I have to say that I don’t have any complaints about working with Redfin agents from a mortgage originators standpoint.
Of course not, rebate brokerage can direct business to mortgage, title, and escrow so the larger industry has always been treated well by redfin. The Real Estate Brokerages have also been very helpful in getting redfin up and running. Real Estate agents however know this is a ploy by Large Brokerage houses to get them to work more and paid less.
David needs a Slurpee today to cool off. I suggest a Biggee Size banana/cola.
Chuck, could another factor could be agents who are willing to list a home at any price–it’s not the seller overriding them…maybe that CMA comes in higher than justified and the seller wants to believe…just going for another listing?
David-
To your comment regarding buyer’s agents being the problem. What planet are you on?
I’ve made several lower offers in the last year and my agent was never the problem. They made an excellent case for us: pre-approved buyer, plenty of $$ down, don’t need to sell our home, etc.
It has always been the sellers’ agents having fits; often stating dramatically “I can’t show this to my sellers” in response to offers ranging 5-10% below 2005 pricing. One seller’s agent even called me personally to tell me how insulting the offer was (she got my phone# off the offer), so I know my agent wasn’t fabricating the story.
If making an offer that is below ‘Outrageous Bubble Pricing’ during a recession is considered “lowballing,” then we certainly have been out there making lowball offers.
And, please explain to me why waiting for price drops (when offering less has proven to be fruitless) would be considered “nuts.” I still pay less for rent. In order to stay in my neighborhood, my monthly mortgage payments will be more than double my rent. And with predictions that home values won’t rise significantly for anywhere from 2-10 years (depending on who you ask), the financial math certainly supports standing pat.
A couple of those homes we bid on were snapped up, but the larger remainder are still sitting on the market- I wonder who that will hurt in the long term?
And speaking with other buyers who are also making lower offers than asking (and not succeeding) I believe there ARE probably thousands of lowball offers floating around – its just that the sellers (or their agents) are clinging to the past and are unwilling to think about anything less than full price.
i think he meant that there is no reason to wait for a price drop when the market is going in the tank. if you want to submit a lower offer right now, low ball away.
Once again another comment got lost. I forgot to save it so I could resubmit.
This will be the third attempt.
redfin is a big brokerage company that is an online Real Estate business model that offer rebates. It’s an inducement to use the service. Every large brokerage is hoping redfin will work. They want it. Posting pictures on the internet and having some one come to you to write the offer is called lead generation. redfin claims there is some big conspiracy against them when in fact they are just business as usual and the consumer pays. The consumer pays a lot. It’s more give me something for doing nothing.
stillwatching? Insanity is doing the same thing over and over and expecting differnt results. It’s nuts to say a seller is insulted by an offer.
Real Estate is about negotiation. Two properties on the same block may be two entirely different products, why would, or should they be priced the same? If a property is worth more than the buyer is willing to pay then it’s over priced to that buyer. Maybe the seller needs a bit more time.
There again I have actually heard buyer’s agents say they don’t show properties that have been on the market more than thirty days. They are stale. Like saying a jar of pickles might go stale. It’s nuts.
How many expired listings has your agent shown you? How many off market listings? How many FSBO? has your agent suggested giving the seller a couple of weeks to think about it? Have you told your agent to take the offer back and present it again? They work for you.
I could go on, but this is a comment on a post.
The key variable is the motivation of the seller and the buyer.
Seller’s may not have the sense of urgency that you expect and want to wait until it is convenient for them to close and move. For example, one seller client turned down an offer because he was going to Russia for a few weeks and the buyer’s time frame was inconvenient.
In my market, in Northern Virginia just outside DC, I am often pushing my buyer clients to make more aggressive offers… but they often are too nervous about missing that perfect home and then having to start from scratch. Ultimately, it is their call and I present what they want to offer.
Davif Losh-redfin is a big brokerage company that is an online Real Estate business model that offer rebates. It’s an inducement to use the service. Every large brokerage is hoping redfin will work. They want it. Posting pictures on the internet and having some one come to you to write the offer is called lead generation. redfin claims there is some big conspiracy against them when in fact they are just business as usual and the consumer pays. The consumer pays a lot. It’s more give me something for doing nothing.
This I need explained better maybe my brain got overheated today-I think I understand what you are saying but maybe not…please give me more insight.
It’s extremely simple. Discount Brokerage has been around for decades, as long as I can remember. There are two elements to a Brokerage, there is the ownership and the agent. The Real Estate agent is licensed through the Brokerage. The agent can be on a desk fee, which they pay every month, or a split where they split a commission with the Brokerage. A discounted desk fee office in in Seattle called Skyline has a desk fee of about $400 per month. When you pay a Real Estate commission of thousands of dollars you can see an agent at a desk fee can make good money.
So any one with a Real Estate license can go to Skyline, pay a desk fee, and be a Real Estate agent. They only need to do a few deals a year to make good money. Any Brokerage can offer discounted commission, that’s why they say it’s negotiable. A split office, in theory, offers an agent more. I’m in a split office and there is mandatory in office training. There are meetings, and agent education. I personally support that.
Internet Brokerage is new. It’s where the industry was headed. All companies worked on getting listings out to the buying public.
What was an issue, and what redfin asked for and got, was the rebate Brokerage. It had been illegal for Brokerages to offer inducements, or “kick backs” to consumers. Now Brokerages can offer you a kick back for anything to get you to use their services. Smaller companies may not have enough market share to offer large inducements. That’s why I harp on big corporate Brokerages. Coldwell banker wanted the rebate when they where owned by Sears. Sears could offer a wide variety of rebates to do business with Coldwell Banker, including patio furniture.
Now just look what a passing comment about redfin will do. Some how the consumer thinks redfin is different from a regular Brokerage. Some how looking at a list of properties for sale will increase a consumers ability to purchase a home. Again some how consumers reading blogs will increase the knowledge they have about the home buying process.
Blogging for business is a tool used by Brokerages. I would call it a tool that agents use but the truth is you can generate more sales leads by getting on the phone and calling expired listings. There are thousands of expired listings. That is a topic maybe for another time.
The reality of building a Real Estate is that it takes a certain set of skills and knowledge. How many times will you purchase a property? How many transactions will you negotiate? Is it fun to make a commitment to a half of a million dollars in debt because you can do it yourself?
If you spend the time with the internet you can see it has entertainment value. Real Estate agents are busy in the market place. Real Estate is a twenty four hour a day seven day a week business. If your Real Estate agent tells you anything else you need a new one. Real Estate agents are some of the hardest working people in America. The threshold to become an agent is low because it is a set of skills only developed by experience. You can have an aptitude for the business, but it takes practice to be good at it.
There are no short cuts, there’s no magic, you either know or you don’t know if this is a good deal for you today.
Every Brokerage wants you to do it yourself so they can get rid of all the dead wood they have hanging around in the office. Real Estate is a numbers game. The more agents, the more money. With an online Brokerage all you need is a technical support staff.
Really, should I go on? I can.
Like I said all Brokerages want redfin to work. The propaganda that there is some big conspiracy against redfin is false. It’s a marketing technique. Marketing using going to Congress to push for kick back Brokerage bothered me. Then when they turned around with this conspiracy theory and started attacking Real Estate agents it became a mission in my life to expose them.
Seems like this post has really gone off track from what Chuck wrote about…can we stay on track fella’s?
this is the third attempt to submit a comment
You know this guy is saying that his Real Estate agent is having trouble presenting a low offer. The post is about discounts in list price which translates into price reductions. Why can’t agents just do deals and stop harping?
We were promised transparency and that was going to level the playing field. Nothing has changed in that regard.
Now in loans everything changed.
I know the lawyer who brought the lawsuit against Mortgage Companies who were charging frivolous fees. It is fascinating how loans work. A Real Estate commission of 3% pales in comparison to a mortgage with thirty years of compounded interest. Lenders had more interest in driving up Real Estate prices, much more than Real Estate agents.
Now we are back to the point about the post. Real Estate value never changes. Real Estate is worth what it will rent for. If the rent covers the mortgage payment then it’s a good deal, if it’s a little more that’s OK, but when a mortgage payment is twice what a property will rent for that’s way over priced.
Zillow was sued for encouraging predatory lending, and misrepresenting property values. Now we have Zillow Mortgage direct from the source. redfin will be the same. The money will come from the Title, Loans, and escrow.
Just like ETrade we are in a time when the consumer will hand over dollars, millions and millions of dollars for an online experience.
Real Estate prices have suffered, mortgages are in default, the credit market that has access to billions of consumers is tanking, and we have a global economic melt down. By all means let’s not offer what a property is worth. Let’s wait for the seller to tell you what they want. Let’s let the banks with the bad loans determine the market place.
The comment about redfin was in passing, it was brought up by the post, I don’t know why.
What I do know is that a Slurpee sounds great. I’ve never had on, but let’s try something new.
Ahhhhh, Slurpee is good, and at $1.85 it is a value far beyond the price. How does it stay frozen all the way to the bottom of the cup?
Thank you Ray Pepper of 500 Realty for another fine bit of information.
Now that is funny! I agree about .02 in liquid and .03 for the cup…
It’s a priceless commodity I tell you, Slurpee is good.
If I keep the cup can it be refilled tomorrow?