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.
first tuesday take
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.
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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
athena, your analysis is typical of the uninformed and also faulty. those of us with more than 5 years in the trade were well aware of the unsupportable rise of sale prices that was a DIRECT AND EASILY ASCRIBED result of the ABANDONMENT OF UNDERWRITING by the more aggressive of the lenders like AmeriQuest, Countrywide, ICI, New Century and such that permitted even folks with no job to lie and get a loan. The result was that many millions of folks that couldn’t buy lunch without a co-signer were now in the buyer pool and the expanded demand had the axiomatic result of driving up prices. this is econ 101. Prior to the entry of wall street and the engineering of the exotic “investment instruments” all lenders had underwriters that vetted the borrowers and said no to those that were unqualified. Even the crooks at Countrywide had a long history of making conforming loans to people with jobs (imagine that) and pooling them and selling them off to the likes of Fannie and Freddie. With the entry of the trainloads of wall street cash, and the dictum of the second tier B school types that were peddling that cash to the lenders to ‘book loans’, the need to be conforming was GONE ENTIRELY…the new rule was BOOK LOANS, WE’LL BUY EVERYTHING YOU CLOSE. NO NEED TO BE CONFORMING. no need to underwrite at all…just make the loans, we’ll figure out how to dress them up and peddle them off.
this was a watershed moment and we all saw the in-house loan officers leave banks where they had to endure underwriting to relocate to brokerages that peddled the No Questions Asked product.
all the persuasion in the world cannot make an underwriter grant a $600,000 loan to a self employed gardener…the lust for profits was real indeed but the originating seed, the fertile soil and the fertilizer ALL came straight outta wall street.
The above comment does not take into account the power of persuasion and the power of the glitter and magic created by the ecstasy of a rising market. Yes people come under a “glamour” of sorts.
Appraisers, agents, and lenders all participated in the euphoria, which created a FABRICATED VALUE, not a true market value during the bubble.
The valuations and the lending were NOT based on sound, time-tested principles. Instead, lust for huge quick profits reigned supreme.
Lenders, brokers, and appraisers spread the fairy dust far and wide, and everyone was mesmerized by greed for profit. This was not just subtle greed. It was EXCESSIVE in its expression, as wild flipping testified.
Buyers WERE indeed encouraged by the euphoria and by over-eager agents to list as high as possible during the bubble. Eager appraisers, pushed by brokers, tagged along in the creation of the FABRICATED VALUES.
The fabricated values were false, as has been proven since. No 3-bedroom shack in Manhattan Beach could ever be truly worth $1.5 million to any truly sane buyer.
When “TRUE” market value is not really true, but a hyped false and fabricated value, everyone ends up suffering. Greed played a significant role in the housing bubble.
Greed always exacts a price on the downswing.
It’s a Law of Nature. If you think you can espouse greed and get away with it will all positive results, just try it. You’ll quickly learn otherwise. History tells the story since time immemorial.
It’s a Law of Nature.
The above comments ignore the fact that agents don’t earn any commissions, unless the listed property sells. Most time agents have informed the prospective seller of their estimate for an actual selling price – but they meet with an irresolute seller who hasn’t faced up to the current market prices. The agent takes the listing, with the intention, or maybe even a verbal agreement with the seller, that they will adjust/lower the price when they see the market’s response – then the seller won’t budge on price. No price is absolute until there is an agreement between the buyer and seller on price – that is the true market value – under any economic conditions.
Sellers expecting more and more was one causative factor in the recent housing bubbles. And pray tell, how did sellers come upon such an idea?
How did sellers, right before and during the last bubble, come to the conclusion that their homes were worth so very much? This was a time when 3 bedroom shacks in Manhattan Beach were selling for $1.5 million.
Could it have been the AGENTS who hyped the seller to list for more? My, my, we wouldn’t want to say that now would we? That would infer that the agent was after a higher commission. We wouldn’t want to infer that now would we?
Because that might implicate the agents as one of the causes for the bubbles to begin with? An agent would never be greedy for a higher commission, would he?