Why Do Agents Raise the Price On Their Listings?

A Counterintuitive Strategy.

If you've followed your local real estate market closely, you've invariably seen this scenario play out: A listing hits the market at a certain price. After a few weeks or even a month with no apparent change in status, the listing agent changes the price. Logic would dictate that if a house hasn't sold at its initial price, the next step is to lower the asking price to attract more attention. After all, every home has a value, no matter where it is or what condition it is.

But every so often, you'll see a house that appears to be languishing on the market and then the listing agent actually increases the list price, rather than the intuitive step of reducing the price.

Why in the world would someone do that?

There's a logical reason for this, but first it helps to understand how homes in San Carlos are generally priced in the first place.

The “Gamble”.

For as long as I can remember, the pricing strategy in San Carlos has pretty much gone as follows:

• Estimate what you think the house will likely sell for.
• Price it 10%-20% below that number to create demand.
• If all goes well, get multiple offers and drive the price back up to the original estimated price, or in many cases, much higher.

That is a somewhat oversimplified summary, but you get the idea. The ultimate goal is to get multiple offers so that buyers are competing with each other, rather than negotiating with the seller. While many people dislike this strategy, I can tell you it has been in place long before I became a Realtor, so please don't shoot the messenger!

Is there an inherent risk with this strategy? Absolutely. In essence, the listing agent and the seller are gambling that the artificially lowered price is going attract a hoard of buyers who see it as a bargain, and then the negotiation begins.

But what happens if nobody shows up, or if buyers only write offers below the asking price? Then, the gamble has backfired and it leaves the seller and their agent with one of three options:

1. Accept an offer that is lower than anybody wanted or expected.
2. Take the listing off the market entirely, or
3. Raise the price to what the seller was hoping to get in the first place.

And option #3 is likely the reason why you see listing agents raising the list price on a stale listing.

One Strategy Doesn't Fit All.

Where sellers and their listing agents get into trouble in these situations is that they overestimate the potential buyer pool and the subsequent demand for their home. There are a lot of reasons why this can happen, even in a desirable city such as San Carlos.

The most obvious recent reason is simply the market conditions — when the home interest rates skyrocketed last year, it stripped a lot of buyers out of the market, and it messed with the psyche of those who remained in the game. Intentionally under-pricing a home became become a much bigger risk, no matter how nice or desirable it was.

There are other factors come into play that also make this strategy more risky: Location, condition, and specs. Typically this strategy is not the best way to go for homes that are on very busy streets, are in poor condition, are on small lots or no flat lot at all, etc…anything that can shoot down the number of buyers who want to make it their next home.

So in the end, does raising the price of a stale listing end up working? If the goal is to snuff out the lowballers and bargain hunters, then yes. But if the goal is to sell the listing for the original estimated price, it's hard to fathom that someone is going to pay more for something that wouldn't sell at a lower price in the first place.

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