Setup homes are over-priced listings that buyers reportedly love to tour, but inevitably will not submit an offer on when less expensive comparable properties are available. Sellers of over-priced homes are either misled by their agent into thinking their home is correctly priced, or allowed to stubbornly assert their home is an exception.

Seller’s agents allow their sellers to over-price their homes for a number of reasons; most are intentional, some not. An agent may have inaccurate expectations about the property which exceed market realities, or they may be aware of the pricing problem and simply not want to risk losing the listing or alienating the seller by a disclosure of market realities; sounding negative and putting off the seller in the process.

However, seller’s agents who list a setup home at an unreasonable price mislead the seller. Agreeing to an incorrectly set price sends strong implications the agent believes it will sell at or near that amount.

Alternatively, buyer’s agents reportedly find these homes useful as a way to make similar, less expensive comparable homes down the street look more attractive, much to the detriment of the seller and his agent.

In this bait and switch routine, the seller wonders why no serious offers are coming in for their over-priced home and why the listing is languishing. Of course, with speculators presently in a rush to buy everything in sight (though will likely stop doing so in the near future), the seller and his agent of a home with a high list price might well score.

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It is a usually a waste of time for an agent to knowingly over-price a property’s listing. If a seller is too stubborn to lower his expectations of the listing price after the agent properly informs him what the home will realistically sell for, the agent needs to fire that seller and conserve energy to use their talents where they are more likely to pay off. If the tree is unlikely to bear fruit, move on to more fertile orchards.

Serious buyer’s agents will not likely waste their time with so-called setup homes, limiting the properties they show their clients to those priced right to sell.

This situation is all the byproduct of sticky prices promulgated by sellers who refuse to acknowledge the value of their home has fallen from its boom-time price, a fixation known as the seller’s money illusion. With the slowly improving sales volume for low- to mid-tier homes, some sellers have prematurely insisted on listing their homes back at pre-recession prices.

However, such pricing strategy is ill-fit to the new real estate paradigm sprouting anew out of the liquidity trap of zero-bound interest rates (that is, they cannot go down). Yesterday’s dollar prices are history for another decade or more to come. We’re not there yet, folks, and won’t be until interest rates peak again in 25 to 30 year’s time.

Related article:

Sticky prices, tricky situation

A word of advice to agents: avoid impossible listings, as they are usually unfair to the seller and always to you. The seller’s agent’s fiduciary duties require full transparency with the seller, including his opinion on a realistic listing price should he have one – as he nearly always does.

A seller’s agent is paid a fee for their expert knowledge, and sellers need to trust their agent’s opinion of the proper listing price. If they do not, fire them as clients. If you don’t, you can bet when the seller’s over-priced home ends up sitting on the market for months, the seller will place the blame squarely on his agent, as owners rarely place any blame on themselves.

Re: Overpriced ‘setup’ houses are used to sell other nearby homes from the Los Angeles Times