Realtors® and home buyers approach the issue of home prices very differently.

It’s not that we’re not trying to do what the buyer wants us to do, which is get the home for the buyer at a good price.  It’s just that we tend to think different things have an impact on price than buyers do.  Because of this, we tend to ask different questions.  Certain questions come up again and again, and while you’re asking one question about price, your Realtor® is often asking himself very different questions.

First, let’s look at the mother of all buyer price questions.

How Motivated Is The Seller?

Buyers ask us this a lot.  This question is problematic on several levels.  First of all, every listing agent will tell you his sellers are motivated.    Certainly the listing agent is motivated to sell the house.  But the word gets thrown around a lot, and it’s hard to get at what "motivated" really means.  So what does the question really mean? 

To a buyer, the question seems to mean: "How much less than the listing price can I get the house for?"  Well, OK, that’s a fair question.  The answer has a couple of different parts.

Part of the answer is that you never really know until you write up the offer.   On television, real estate agents are always calling each other up and negotiating prices on the phone.  In real life, you’re better off actually writing the offer up.  This is partly because it shows the seller that you’re not just kicking the tires, that your offer is a serious one.  It’s also better to have the offer in writing because it shows the seller all the details of your offer.  For example, banks selling foreclosures are notoriously interested in cash buyers and buyers with very strong financing, so they know they can close the transaction and move on.  Writing up the offer out is a way to get all the terms on paper so the offer can be evaluated fairly.

The other part of the answer brings us straight back to the question:   How motivated is the seller?   Is motivation simply an abstract concept used by hungry real estate listing agents (and method actors)? 

What would be helpful is if we had a way to find out how motivated the seller is without having to rely on the listing agent.  And in fact, there’s an excellent way to tell how motivated a seller is, and this brings us to the mother of all questions that Realtors® ask themselves when they look at price.

How Does the List Price Compare to "The Comps"?

Let’s make up a neighborhood, and a house and a seller.  Let’s say it’s a 3 bedroom, 2 bath home, single story, 1700 square feet, built in 1980, and in the last three months homes built between 1975 and 1985 between about 1600 and 1800 square feet have been selling in this same neighborhood for $145.00 per square foot.  So on the basis of $145.00 per square foot, we expect this 1700 square foot home to be listed for around $246,500.  (i.e., 1700 x $145).

How motivated is the seller?  Bear with me.  We’re about to get to The Weird Result.

Remember we said that when the buyer asks "How motivated is the seller", she’s asking "How much less than list can I get this for?"   The Weird Result is this: the more motivated the seller is, the less you can knock off the price.

Why?

You see, a seller who’s really motivated lists the home worth $246,500 for $180,000 (for example).  Now if you were the only buyer in the world, that’d be fantastic news for you because you could just swoop down and grab it!  Unfortunately for you as a buyer, a seller who’s really motivated attracts a hoard of buyers because he prices the home according to his high motivation.  A seller who’s not motivated lists the same home at $285,000 and has a listing agent who writes "motivated seller" in the listing.

If the seller’s not motivated, you stand a better chance of knocking something off the price.  The seller with the listing at $285,000 may still be thinking $265,000, which is too high, but at least he’s willing to negotiate.  Chances are pretty good that that listing at $180,000 is on its way to selling for $200,000 (or some other arbitrary, higher than list price figure). 

So, How Motivated Is the Seller?

Psychology is fun, and trying to psych out your adversary in a negotiation has a lot of appeal.  And I do understand that it can feel like you’re not getting a good buy if you don’t knock $30,000 off of "the price".  If the seller motivation is a psychological rocket science, running the comps to come up with a market value is as simple as can be — and often tells you far more about what’s realistic in a given transaction.  The fact that a built in low price attracts more buyers is the reason behind the observation that there’s more "swing" (difference between list price and sale price) on non-bank-owned properties than on bank owned.  It’s also why we often see prices selling on average above list price, but this only tends to happen in areas where there are many foreclosures.

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