It’s one of those hush-hush practices that homeowners rarely hear about but real estate agents know only too well: It’s called “buying the listing.”
What it means is that some agents want the listing to sell your house so badly that they'll go along with whatever price you ask, even if it’s outlandishly above what comparable houses are commanding.
They know that there’s only a minuscule chance the house will sell at the inflated price you’re proposing but they take the listing anyway. They fully expect that after a few weeks with no takers, you'll sober up and agree to what may have to be a series of price reductions.
Buying the listing works for some agents because they get cut into a commission payout that they would have missed had they lost the listing to competitors who counseled lower prices. Plus they reap immediate benefits: They’ve got their name plastered on a sign in front of your house, and they can hold open houses that could bring them new clients and other houses to sell.
But there are potentially big drawbacks for you as the seller. Overpricing a house can doom it to months of sitting unsold, even with price reductions. Serious buyers get turned off by new listings with inflated prices and they may not come back when the price inevitably gets reduced. At the end of the process, you could be left with a final price well below what you would have gotten had you priced it realistically earlier.
Buying the listing is a controversial issue in the real estate field. Most agents insist they don’t condone it or engage in it themselves. It’s also potentially an ethical violation for members of the National Association of Realtors, who are prohibited from “attempting to secure a listing” by “deliberately misleading” the owner as to the market value. Not advising overly optimistic sellers about the true value of their property — solely to obtain the listing — can be construed as misleading them.
How common is this? It depends on location and market segment. Some agents report that it rarely occurs in their areas. Others, such as Tony Marriott, an agent with Keller Williams Arizona Realty in Phoenix and Scottsdale, say it’s so commonplace that “better than 50 percent of the listings” start out notably overpriced.
Agents elsewhere say that initial listings with inflated prices account for anywhere from 10 percent to more than 30 percent of all new properties put on the market. Diana Keeling, an agent with Coldwell Banker in Bethesda, Maryland, told me the practice is most common in the upper brackets, where “a lot of agents want the listing at all costs.”
Dean Moss, a Keller Williams Realty Partners agent in Chicago, says “some agents have agendas of listing as many houses as they can” – regardless of how off-base the initial pricing may be – “as an advertising billboard for themselves.” Passersby see their signs frequently and figure, wow, that agent must be the best. Moss says when he confronts these agents and tells them their list price is off the charts, they sometimes reply, “I know. Make an offer!”
Some agents defend taking listings at elevated prices because they discuss pricing strategy in advance with the sellers. They draw the line: If the sellers of a house that should be priced around $400,000 are insisting on a listing at $495,000, they won’t touch it. But if they see the sellers are trying to push a little — say pricing at $415,000 or $420,000 — they'll take the listing.
Alan May, a Coldwell Banker Residential Brokerage agent in Evanston, Illinois, says he’s open to listing properties that are slightly overpriced, but only after showing the sellers comparable recent sales and agreeing to price adjustments downward if the house doesn’t sell within specific time periods.
Bottom line: If you’re planning to sell your house, arrange for multiple presentations by agents who specialize in your neighborhood. Study the market analyses they offer. Don’t choose your agent mainly because he or she says your house is worth the most. Choose based on the key factors: proven sales record at or close to listing prices; strength of marketing strategies and resources; outstanding references and reviews.
If you let an agent buy your listing at a price that’s not supported by hard data, you may regret it months later when it still hasn’t sold and your asking price is much lower.
Kenneth Harney is executive director of the National Real Estate Development Center.