Realtors Over Inflating Market Value
Do real estate agents mislead sellers about the value of their homes? You bet they do, and it happens all the time!
While a real estate agent telling a seller an unrealistic value for their home is as old as the whole business of selling real estate, it becomes more prevalent when markets show signs of improvement.
When home inventory levels start to drop, and there is any positive news in the Real Estate world, Realtors will prey on unsuspecting home sellers who are ripe to believe just about anything they hear.
When fewer homes are for sale, it is always suitable for those considering selling their home.
It is the simple economics of supply vs. demand. When inventory rises, prices come down. When they go down, the opposite occurs.
The problem is Real Estate values do not change overnight. The situation is especially true when going from what would be best described as a “buyer’s market” back to a “seller’s market.” Markets change gradually as market forces change.
The matter of real estate agents misleading home sellers about their property’s market value is complex, encompassing diverse motivations and consequences.
Providing false information about a property’s market value is widely regarded as a highly unethical practice for real estate agents and is expressly prohibited by Realtor ethics codes. Agents may inflate home prices to attract sellers who are looking for a higher sale price, ultimately aiming to secure a listing.
This method may result in homes being listed at inflated prices in the market, leading to extended selling periods and possibly lower final sale prices than accurately priced homes from the start. It is one of the most shady tricks in the real estate industry.
There are many things sellers need to know. Pricing accurately is at the top of the list.
Inventory Levels Are Down All Over The Country
Inventory levels have dropped to their lowest levels in the Metrowest, Massachusetts area in years. Some Realtors have buyers, but there are few properties for buyers to choose from.
Getting a new listing to sell is a treasure for a Realtor in this environment.
In destination towns like Southborough, Westborough, and Hopkinton, a beautiful home, priced correctly, that comes on the market in a popular neighborhood could easily have multiple bids.
This, of course, is perfect for the agent who is listing the property. Who wouldn’t want to have buyers fighting over a listing?
A seller certainly would be pleased as they will likely get close to their asking price or even possibly over it! Bidding wars on houses are commonplace when inventory levels are low.
Unfortunately, this kind of real estate market increases the odds that a real estate agent will lie about a home’s market value. Real Estate agents are consistently misleading sellers on their home’s market value!
Lower Home Inventory Equals Over-Pricing
Even though I specialize in working with home sellers, this type of market brings about situations I do not particularly enjoy.
While getting multiple bids on my client’s homes is something I would never complain about, other aspects of a better Real Estate market can be troublesome.
At the first sign of an improving Real Estate market, you will get Realtors who will start giving sellers’ values not based on comparable sales data but their opinion of what someone will be willing to pay because there are no other houses around for them to look at!
This really dangerous game almost always ends up disastrous for a seller. Improperly pricing a home coming out of the gate is one of the worst things you can do because it is tough to recover from.
Values All Over The Place
Just recently, I had a Real Estate interview with someone who was going to be selling their home. They had three other Realtors besides me come in and evaluate the market value of their home.
You would expect differing opinions on value as it is not an exact science. Frankly, in my experience, it is not all that uncommon to see values given by Realtors vary by $25,000 on any given home.
If you are selling your home, that is quite a difference in money going into your pocket. You never want to leave money on the table if you are a seller. I certainly get that!
What if I told you the value given by the Realtors interviewed varied from low to high by $75,000? Yes, you read that correctly.
In this particular instance, I came in with the lowest value of the four agents. Fortunately for me, the seller was very astute.
They have been following the local Real Estate market very carefully and, before they ever met with a Realtor, had a general idea of what the value of their home was in this market.
They were looking for validation and could see the data I provided where their house’s value stood.
Inflating Value to Get The Listing
The other agents had the same data, but instead of looking at it objectively, they decided to tell the seller something they thought the seller would want to hear.
This is called “buying a listing” in Real Estate circles. It is one of the oldest tricks in the book and very unprofessional for a Real Estate agent to do. It is against our code of ethics, but unfortunately, it always happens.
If you are an ethical Realtor, this is one of the most frustrating parts of the business. Part of our job, when asked by a seller to provide a market evaluation, is to be honest and not mislead them on the value.
When a Real Estate agent has little or no business, they often become desperate. Saying and doing things they shouldn’t become more commonplace. Selling your soul to the devil, I guess.
Paul Sian, a long-standing Realtor says that buying a listing has been a tactic he has witnessed for as long as he has been in the business.
“Bill, agents who blatantly do whatever ever it takes to get a listing even if it includes unrealistic expectations is maddening.
As you know, it takes away from the credibility of our industry. It is frustrating to see homes drop in price and then sell at what you told the seller.”
No Business Doesn’t Mean Better Service
Often, a seller will choose an agent because they don’t have a lot of business, thinking they will get better service. The rationale is that the busy agent won’t have enough time for them.
Rarely is this the case. Great Realtors who do outstanding business have systems that allow them to sell numerous homes. There is a reason why people continue to hire them over and over again. Track records mean a ton in Real Estate!
A Realtor that has no business doesn’t sell for a reason! It is not logical to pick the person nobody hires because they will do an excellent job for you. It doesn’t work that way.
This is no different than wanting to have the best lawyer representing you if you happen to be accused of something you didn’t do. Let me hire Bob, the lawyer, because he has a tiny amount of business. I am sure he will do a great job.
Why does Real Estate seem to be the only business where people equate a Realtor with all the time on their hands as a good thing?
Validation From Online Value Estimators
Unfortunately, some home sellers will use online value estimations to help them make vital decisions. Whether it is validating a suggested listing price an agent gave them, or straight-up pricing their house.
Online home value estimators often miss the mark on accuracy. These tools calculate home values using algorithms that analyze data from various sources. However, they can’t account for a home’s unique features or condition.
This leads to estimates that may not reflect the actual market value.
Real estate professionals advise against relying solely on these estimators for pricing a house. Determining home values takes analysis from a seasoned professional.
The main issue is their lack of local market insight. Online tools don’t understand neighborhood trends or buyer preferences. These factors significantly influence a home’s value. As a result, estimators can provide figures that are too high or too low.
Honest Local Real Estate Pros Know Critical Pricing Variables
The personal touch of a local real estate expert is invaluable. They assess homes on a case-by-case basis, considering all factors. This includes recent sales, local demand, and unique home features. Their expertise ensures a more accurate valuation tailored to the local market.
Furthermore, online estimators can’t predict how market conditions will change. Real estate markets are dynamic, with prices fluctuating based on supply and demand. A local expert keeps up with these changes, providing up-to-date advice on pricing your home correctly.
Two of the most recognizable home value estimators come from Zillow and Redfin. You can see a complete review of Redfin vs. Zillow Estimates. What you will learn is just how inaccurate these online tools can be,
While online home value estimators offer quick estimates, they should be avoided when pricing a house. Their lack of accuracy and insight into local market conditions can lead to incorrect pricing. For the most reliable valuation, consult a local real estate professional.
Conclusion
In order to steer clear of these pricing pitfalls, it is advisable for sellers to seek advice from several agents to obtain a variety of perspectives on their home’s value.
You should seek out agents with a solid track record and ethical standing. Select one based on their capability to provide a realistic, evidence-based valuation rather than the most optimistic one.
Sellers need to be cautious of agents who fail to ask the appropriate questions, simply act as messengers without providing guidance, or appear overly eager to please without offering substantial, truthful advice
Sellers must realize that setting an excessively high price can discourage potential buyers. They may hesitate to offer homes they view as significantly overpriced, resulting in a stagnant listing.
Ultimately, when selecting a real estate agent, it’s important for sellers to resist the urge to simply opt for the agent offering the highest sale price. Instead, they should prioritize finding trustworthy, knowledgeable agents who rely on reliable market data and ethical methods to determine pricing.
This not only upholds the integrity of the real estate transaction process but also enhances the likelihood of achieving a successful and timely sale.
About the Author: Bill Gassett, a nationally recognized leader in his field, provided information on Realtors misleading sellers on their home’s market value. He is an expert in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 38+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
Great post, Bill.
And run from the seller who insists they don’t want to leave that “$75K” on the table after you present the facts.
A. That “seller” can’t lose what they never had.
B. It’ll cost them more in time, money & stress along the way.
C. The inexperienced or unethical agent will lose their shirt in time & foregone income as well…leaving them with even more time on their hands.
Good people of Metrowest Massachusetts: Hire Bill Gassett!
Exactly Brian! My motto is that I will not put my sign in someones yard unless I know there will also be a SOLD sign rider to follow.
SO True! This is part of what gives our profession a bad name. I can list residential or commercial properties all day long. It’s my job to Sell them. Taking an overpriced listing is not only misleading, it’s a debt to my business and waste of time. I won’t. I go to all listing appt deciding if I want it or not. Sellers may not want to hear it, but when it expires with someone else, they tend to listen to reason.
Holly – we share the same feelings on this topic. My only goal when I list a home is to sell it for the most money possible with hopefully the least amount of headaches. Realtors that list properties just to have something to advertise drive me nuts!
I was just thinking why would a Realtor inflate the value of a home? To have a potential seller list their property? It can be tempting for Realtors to do so especially in a market with shrinking inventory like we are experiencing.But again, as you have said, ethical Realtors should not succumb to this pressure.
Great article.
Ryan unfortunately this is a part of the real estate business that has been going on for a very long time. It typically becomes more prevalent when inventory is low and markets are improving. Some Realtors become desperate for business and will do whatever it takes to increase their inventory of homes for sale. It is a shame because the seller is the one who suffers.
I tell all my potential sellers that they need to be serious about selling. If they are going to start high and “just see” what the market will do, I am not the Realtor for them.
Unfortunately it is common in any market for an agent to promise a higher price for a home just to get a listing. They prey on the greed and naivety.
What sellers need to realize is it is almost impossible to under price a home. Given just a little market time and good marketing a home that is under priced will bid up to fair market value.
A wise seller should choose their agent based on their marketing abilities and experience then select a price for their home based on comparable homes.
Being honest with clients is very tricky and must be dealt with carefully… but ethically. If I can’t get the home sold for what they want, I won’t list it. It’s a tough fact that sellers can either realize ahead of time or months down the line.
Eileen – I agree with you completely. You need to be honest and upfront with all seller’s and never fear that you are not going to lose out on the listing because you didn’t tell the seller what the wanted to hear.
Great insights, Bill. Thanks for sharing!
I hope more agents start to take a lesson from you that being an ethical agent can actually result is MORE sales, not less, in the long term.
Regards,
Michael (Mike)
Mike it would be nice to think that but there are always going to be real estate agents who are desperate for business. What we need to teach is the ability for sellers to recognize it and stop believing what they want to hear!
As a seller, I am in a situation now where a realtor lied to me about the value of my home to get a listing. She then later did another CMA with a much lower realistic price, but did not tell me. My home has lost buyer interest because it was listed too high. My house has been on the market for over 40 days without one single showing. The broker is wanting to talk to me stating that it is just a miscommunication. I have proof in emails and 2 CMA’s that she lied. Help…where do I turn? I already found another place to live and am moving in 2 weeks.
Kathy that is just awful but unfortunately just like any other business there are some bad apples in real estate. This happens far too often in my industry. What you should try to do is see if you can get the contract terminated. The best way to go about doing it would be to speak to the owner of the real estate company where your home is listed. You should explain that you feel like you were completely duped and feel like you need to go in a different direction.
How do you as a buyer, know if the sellers agent has over inflated the price and is therefore rejecting on price offers? Thank You
The best way to know if a home is not priced properly as a buyer is to have a buyers agent in your corner. A buyers agent works on your best behalf and will evaluate a property for you. Their job is to make sure you do not pay anything more than fair market value and will attempt to get you an accepted offer for less.
That type of market and hype also increases the likelihood of a listing agent representing a buyer in the sale. Then all kinds of crazy things happen.
Buyers would do well to avoid the listing agent who willingly or enthusiastically give them any hint that it’s possible to represent two people who likely have different objectives.