November 1st, 2013 12:34 PM by Eileen Denhard
Have you ever said something in the heat of the moment, then wished for weeks later you could reel those words back in? The truth is, all of us commit emotion-driven mistakes in some areas of our lives. But when it comes to selling their homes (read: cashing out their most valuable assets) the stakes are simply too, too high to allow your sellers and their transactions to fall prey to predictable emotional pitfalls.
Fortunately, when it comes to emotion, what’s predictable is avoidable. Over the years, I’ve found that sellers can and often will check themselves before they wreck themselves if you can help them predict the specific emotions they are likely to experience at various points in their transactions.
This list will help you predict—and help you help them avoid—some common seller decision traps driven by emotions.
Wikipedia defines panic as “a sudden sensation of fear which is so strong as to dominate or prevent reason and logical thinking, replacing it with overwhelming feelings of anxiety and frantic agitation consistent with an animalistic fight-or-flight reaction.” But there’s a real estate-specific reaction to panic that the infinitely wise Wiki editors left out: freezing up entirely.
In cases of overpricing, many sellers start out as overconfident in their home’s prospects on the current market. But as the days on the market turn into weeks, or even months, that overconfidence morphs into panic: panic that the place will only get a lowball offer, panic that the place won’t ever sell, panic that the seller will be stuck in the property, panic that the seller’s future life or career plans will be ruined. This is a panic that snowballs into increasingly disastrous hypothetical scenarios, and fast.
Unfortunately, this panic is often accompanied by a fear that reducing the home’s list price will kick off this snowball effect. As you and I know, this couldn’t be further from the truth. When a home is dramatically overpriced, cutting the price is the only way to fix the scenario and render the home more compelling to buyers. If you’ve been around the business for awhile, I’m sure you’ve even seen cases in which a price reduction causes a listing to hit a sweet spot where it receives multiple offers and sells somewhere between the reduced price and the original list price.
But sellers who cannot manage their fear and panic often end up paralyzed, unable to cut the list price. And this begins the snowball effect of more and more days on the market, which aggressive buyers watch until they believe the seller’s desperation will make them amenable to a lowball offer.
The best way to help neutralize this panic is to work with your seller to put a price adjustment action plan and timeline in place before it ever arises. If you’re taking a listing you believe is overpriced, tell your client that, brief them on local DOM data and get them to agree up front to set up a timeline for making price reductions, if the home stays on the market significantly longer than average DOM.
If you sell dozens of homes a year, each client may be special to you, but it’s easy to see their homes as commodities. To them, though this is the place where her daughter took her first steps, the place he carried his bride over the threshold, maybe even the place their parents built with their bare hands. So, take care as you do this, but have a conversation with your sellers to help them mentally transition their home. Gently walk them through the truth that, at the moment they made the decision to sell it, their family’s precious place became an asset which, like any other good one would sell in the course of business, must be wisely marketed and priced and transacted for.
Sellers who are excessively attached to a home are likely to:
ignore market data, like the recent sales prices of comparable homes nearby
disregard their agent’s staging advice
improperly prepare their home for the market, failing to update or neutralize the decor
be irrational in negotiations around price or repairs
refuse to respond appropriately to market feedback, like no showings or offers even after it’s been on the market for weeks or months.
If you continue to run into challenges with a seller who is overly emotionally attached to their home, make these points: “Buyers don’t know the emotional value your home holds for you. Nor do they care—and they certainly have no interest or intention to pay for it. If you want to stay attached to your home, keep it—no harm, no foul. But if you truly want to sell it, you must release yourself from your emotional attachment to it.”
An old friend of mine who happened to be a former pro athlete would often shake his head when a baseball team on TV went wild over a mid-game rally. His mantra: “Don’t celebrate too soon.” In sports, some say that celebrating too soon can cause you to relax and play less aggressively or less defensively for the rest of the game, giving your opponent a chance to make a last minute comeback.
And the same is true in real estate. Multiple offers and above-asking sales prices happen frequently on today’s market, but some sellers assume their home will be in that number way before they even sign the listing agreement. Sellers who “celebrate too soon,” so to speak, can put themselves at a disadvantage in a number of ways, like:
Cheaping out on staging, failing to do all the items on their property prep list
Overpricing their homes, assuming the demand-supply imbalance will automatically swing in their favor
Getting sloppy in how they maintain their homes on a daily basis, while they are still on the market, and
Making large purchases or spending their house proceeds “in advance,” while the buyer’s loan and inspections are still pending.
Even on today’s market, deals sometimes fall out of escrow because a buyer has a change in their life, their job or their family, or because they simply turn out not to qualify for the loan they were pre-approved to receive. Smart agents advise smart sellers to stay vigilant and keep their houses meticulous and their finances in good shape throughout the entire time frame from property preparation through close of escrow. It’s also essential to keep your client’s mortgage broker in close contact to help time the purchase of their next home in a way that makes sense vis-a-vis their current home’s listing and sale.
Some sellers have a confused understanding of the mechanics of determining the fair market value of a home and setting a list price. This leaves them vulnerable to the trap of letting their financial self-interest and fantasies for the future get in the way of setting a smart list price.
As you know, a home’s fair market value is defined by what a qualified buyer will pay for it at a given moment in time. Yet some sellers are so emotional about their plans for the next stage of their life that they convince themselves to base the list price for their current home not on its fair market value or marketing considerations, but based on how much money they need to fund their next home purchase or their move to Malaysia. (I’ve been watching too much House Hunters International—don’t mind me.)
This is the quickest, most lethal route to pricing a property so high no one comes to see it and it lags on the market. And that road usually ends in no offers at all, or very low ones. Make sure your sellers understand that overpricing actually endangers their vision of moving forward with their lives, rather than somehow magically financing it. Help your sellers combat this tendency toward price confusion and take the interpersonal tension out of making low pricing recommendations by constantly referencing comparable sales data and market feedback like low buyer traffic, comments from buyers broker’s and a listing DOM much greater than the average in your area.