Anyone else think pricing with 'room to negotiate' is actually backfiring ?

Question

Curious how you guys are seeing this play out in your markets. As an agent, I get this from sellers all the time:
“Let’s just price a little higher and we can negotiate down.” I get the logic… but in most cases it does not play out well.

From what I’ve seen, buyers  aren’t out there negotiating on everything—they’re going after the stuff that already looks like it makes sense.  If you’re even a little outside their range, you’re not getting a showing… you’re just getting skipped.

Then what usually happens: Property sits/small price drop/sts again.  And then buyers start wondering what is wrong with it.At that point, you’re not negotiating from strength anymore.

It can be market pocket specific, but overall I find that "aspirational pricing" ends up getting a lower price later rather than finding that sweet spot.  I think flippers often miss this because as investors we are comfortable looking at the overpriced inventory and shooting a 'lowball' offer - but that is not the case for most retail buyers.

This spring market is very different than recent years, and I'm finding that retail pricing is extra tricky in areas with adequate number of listings - but many sellers are going a bit higher on price and I have to wait out the first two weekends to show them what I'm already seeing - what are you all seeing out there?

Marcus Auerbach · Answer

List price is a marketing strategy, not a negotiation strategy.

Listing high with the expectation to negotiate down relies on one factor you can't control: buyer's perception. Buyers are trained to compete and offer over list price. If they don't feel like the house is worth it, they will just ignore it.

For anyone in doubt, look at the data. In Milwaukee we have currently 49% of all new listings in sell in under 5 days. On average 3.8% over list. If they did not, they either sell on average 2% below - or have a 25% chance of not selling at all!

Henry Lazerow · Answer

I do this strategy for all my clients. Group showings and multiple offers over ask, gives you back up offers and worked so well I set the highest price record for a frame 3 in a whole zip code last year.

Stacy Raskin · Answer

Most sellers think this is the market that it was several years ago when rates were super low and every seller was getting multiple offers. Better to price now for what the market is as when reductions come into play usually buyers and their agents think they have more negotiating power as they think the seller will be more desperate to make a deal. So ultimately pricing higher than what the market is at will sometimes lead to a lower net price to the seller which is the opposite of what the seller wanted in the first place.

Peter Mckernan · Answer

I have sellers like this, but I tell them here is the market price for your home. They say, "well, we were thinking X." I tell them, they are the ones driving the boat I am the one giving them the road map to get there. So, if we go there and try that price, I will be calling you in about 2-3 weeks with a price drop down to where it really should be, or the price we talked about.

There are always a little more the sellers want, or a lot more. The expectations needs to be handled on the upfront listing presentation. Also, I have had clients go, I want to list here and I am not moving on price price till we get X. And we wait and I have gotten that to happen to (majority of the time that is not the case).

Andy Sabisch · Answer

We price a property that nets us what we had planned on receiving.  Do we leave money on the table?  Maybe but the last 6 homes we have sold went under contract within 2 weeks while others that went with the "price it higher and we can drop it if needed" were on the market long after we had the proceeds in the bank. If a property is not selling it is only one of two things - it is over priced or the condition turns buyers off (and that means it is over priced).  Remember that every house has a price it will sell at - a poorly done rehab or one that does not show well will never get what the seller hopes and chasing the price down will raise questions in the minds of buyers and they will look for what is wrong.

Richard Golding · Answer

I think “room to negotiate” can backfire when buyers are already cautious. If the first impression is overpriced, the listing may get skipped before anyone thinks about making an offer. Then the property sits, days on market climb, and the eventual price cut can make buyers wonder what is wrong with it.

For flips, the exit price needs to be tied to the most realistic buyer, not the number required to protect a thin rehab budget. If the deal only works because you list high and negotiate down, the risk was probably in the buy or rehab plan, not the pricing strategy.

I would rather price close to the defensible comp range and create urgency than float above the market and hope for negotiation. That is especially true if the rehab is nice but not meaningfully better than competing inventory. Buyers compare monthly payment, condition, location, and confidence. They do not care what the rehab cost you.

Before listing, I would look at sold comps, active competition, days on market, price cuts, and buyer feedback in that exact price band. If the market is thin, build the margin before buying. Do not depend on exit optimism to fix the numbers.

CostCheckGPT-later flag: Maybe, only if discussion turns to rehab/ARV modeling.

Adam Tafel · Answer

It’s incredibly hard to underprice a home, when it doubt we always encourage pricing at the lower end of the range, assuming it’s not considered “luxury” price point. We also strongly encourage bracketed pricing, always pricing on the 25’s (500, 525, 550, 575, 600) never pricing at 499 or 510. Our market in St Paul is finally heating up again - luckily we have not experienced values decreasing like other markets across the country.

Alan Asriants · Answer

Every strategy works differently for each market. If a home is clean, well done, easy to show, in my market - listing it on the higher side can actually put more money on the table. Listing too low might create a lot of traffic but I have seen the following scenario happen too - Multiple offers submitted by deadline and all are pretty much identical. What do you do then?

However listing slightly above a recent comp - pending that your home is presentable and your marketing is solid - actually generates still solid interest, and still multi buyers who can go "slightly" over

It really all depends on whats available in your market...

All of this being said, I saw a home listed for like $250k sell for 650k with an auction premium and honestly if it was listed at $650k, it would probably still be sitting...

Steve K. · Answer

We're seeing a lot of re-listed properties that tried aspirational pricing last year and are pricing more realistically this year. Much better to list a bit under fair market value, get multiple offers and go under contract the first weekend than to try for tippy-top dollar and end up doing a bunch of price drops to get to the right price only after becoming a stale listing. Part of the problem is the market has been flat for a few years so anyone who purchased in the last 5 years or so and is selling now, is looking at a loss with transaction costs factored in. That's a bitter pill for sellers to swallow.

Anyone else think pricing with 'room to negotiate' is actually backfiring ?

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