I don't advocate taking over-priced listings. Sometimes it is inevitable, but before you take a listing that is overpriced, see that the sellers meet the follow three criteria:
1. The sellers must have strong motive to sell.
Your client's motivation to sell is the key indicator of whether or not you will earn a fee for your service. You'll be paid only when your client's property sells and closes, so evaluate and re-evaluate the interest and determination of the seller to complete the transaction.
If a client absolutely has to sell – because of a job transfer, divorce, financial difficulty, a home too small for the family, or a new home purchase for which sales proceeds are required – the odds of a successful closing swing strongly in your favor. The pressure of the pending circumstances will push the seller to complete the deal even if it involves a necessary price adjustment.
A client who has already purchased another home will become increasingly motivated to sell as the pressure of making two house payments comes to bear. I've seen clients undergo complete attitude adjustments regarding the price of their property around the first of the month when they had to write two mortgage checks. The pain of that second check becomes greater than the pain of the price reduction.
2. The sellers must have the financial capacity to sell at "true" market value.
If sellers owe more on their mortgage than their home is currently worth, they'll need to come up with the difference between the sale proceeds and the loan balance at the time of closing. If they don't have the necessary resources, don't take on the listing at any price.
Previously, many homeowners have pulled cash out of their homes and taken new mortgages based on appreciated home values, which have already stagnated or declined. When sellers in this situation get ready to sell, they owe more on their mortgage balance than they'll reap from the equity they've accumulated – and the real estate agent's fee becomes an out-of-pocket expense, rather than a deduction from sale proceeds.
Set this rule in stone: Take on listings only for owners with sufficient equity to sell at real market value or sufficient other assets to make up the shortfall.
3. Accept over-priced listings only for clients who make a long-term commitment to allow you to represent them.
If you agree to list a property at a price that is over the home's current market value, insist on a listing term of at least six months. This will give you enough time to market the property, reduce the price if necessary, or even put a second transaction together if the first one doesn't close.
Too often, sellers who want to stretch beyond top dollar value also want to give you a short timeframe in which to prove yourself. Follow this rule instead: Insist that the term of your listing needs to align with the price of the listing. Take a 30-day listing only if it's backed by a 30-day price – with a 30-day price defined as a price that is 5% to 10% below fair market value. Most sellers want a 30-day listing at a price that is 10% to 15% above market value. No deal! Use the following script to align the listing period with the sale price:
"Mr. Seller, based on the price you want for your home, I am going to need a 12-month listing agreement. You're asking a 12- month price, so I will need 12 months to accomplish a sale. Now, if you want to set a 90-day price of x dollars, then I would be able to take a 90- day listing. What is your desire? Which of these options do you prefer?"
If a seller wants to list their homes at a price that exceeds current market value, be sure they meet the above criteria. Otherwise, you're gambling with your time, effort, money, and energy, with the odds of a payoff approaching the chances of a Powerball win.
Published: November 5, 2012
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