From the latimes.com:
WASHINGTON — In the real estate brokerage field they’re often known as “setups” or “pinball” homes, and this spring’s improving conditions in some markets could be stimulating more of them.
A setup or pinball property is a house listed with an unrealistically high asking price that pulls in lots of visits by agents and shoppers, but no offers. The problem is this: Real estate agents, including even the listing agent, are using the overpriced house as a negative example to sell similar homes in the area that carry lower asking prices.
“It’s like a pinball machine,” said Debbie Cook, an agent with Long & Foster Real Estate in Silver Spring, Md. The “setup” is the foil — the house that agents show clients to make other, more realistically priced listings look better. Maybe the sellers — encouraged by reports of rising sales and low mortgage rates — insisted on the aggressive asking price and wouldn’t list for anything less. Or maybe the sellers’ agent, not wanting to lose the listing, didn’t fully brief them about what the house could command in today’s conditions.
Whatever the specifics, such houses tend to see heavy foot traffic but go nowhere until the sellers drop the asking prices, usually by significant amounts. Before then, however, they may be used without the sellers’ knowledge to market other houses. Since no one seriously expects them to sell at their original asking price, agents are happy to exploit the overpricing to facilitate other sales.
“We’re definitely seeing it,” said Sandy Nichols Acevedo, an agent at Prudential California Realty in Oxnard. “Some people think they can go higher now because the market seems to be doing better.”
Joe Manausa, owner-broker at Century 21 First Realty in Tallahassee, Fla., who wrote about the phenomenon on Active Rain, a Seattle-based industry blog with more than 220,000 members, offers this hypothetical example: “If two very similar homes are near each other, with one priced at $250,000, and the other at $280,000, the higher-priced home is often shown first. Then the real estate agent says, ‘If you like this home at $280,000, you are going to love the home down the street at $250,000!'”
Bill Gillhespy, an agent in Fort Myers Beach, Fla., has a real-life example: He has a listing on the 14th floor of a luxury condominium project overlooking the Gulf of Mexico. The asking price is $450,000. There’s a unit on the same floor with similar views, similar square footage and layout, but with a more updated decor, that is listed for nearly $150,000 more. When Gillhespy is asked by another agent or a prospective buyer to see his unit, he often says, “Let me first show you a unit just down the hall. It’s one of the nicest in the entire building.” The higher-priced model shows well, but shoppers immediately remark on the $150,000 difference “and they can’t see how it’s justified.”
Perrin Cornell, a broker at Century 21 Exclusively in Wenatchee, Wash., says some sellers in the mid-to-upper price brackets in his area “are exuberant” that we’re finally out of the recession and are tempted to disregard agents’ more sobering recommendations on pricing.
What happens to such listings? “Unless we’re using it for a setup,” Cornell said, “we stop showing it” until the seller agrees to lower the price to a sensible number.
But as a matter of principle and ethics, should realty agents accept listings from homeowners who refuse to listen to reason? Manausa is adamant that they should not.
“If you list a property at a price you know will not sell,” he said, “you are misleading the seller. Effectively you are saying, ‘I don’t think it will sell, but I’ll put my name on anything hoping to get paid.”
Acevedo agrees that agents have a fiduciary duty to educate even the most headstrong owners about sobering market realities, but has a compromise solution: Take the listing but require the seller to sign a contractual agreement requiring an automatic price reduction to a specified level if the house doesn’t sell in the first two to three weeks.
Bottom line here for owners thinking about selling in modestly improving markets: Get as much information as you can about sale prices of comparable houses in your area. Talk to multiple realty agents before listing. Sure, you can try pushing a little on price, but if you go overboard, you risk becoming the unwitting setup, the pinball, the out-of-touch competition everybody else loves to visit.
Or agent can list it very low to attract visitors, collect names and advise the seller to relist it at higher price.
so the OPT’s are good for something..
dont get pinballed this weekend.
This is standard practice, and has been forever.
It’s not a bad thing – buyers should see everything available.
Does this BS ever end?
No.
So devious. Amazon does the same thing with showing “retail price” for items.
It’s a psychological flaw humans have, placing too much value on bogus information, presented at the right time: http://en.wikipedia.org/wiki/Anchoring
I think this is perfectly fine practice. especially if the buyer doesn’t know the market. this is the agent simply doing his or her job, showing what is out there, what is over priced, and what is a good deal. for the general population of home buyers, not doing this would be malpractice IMHO.
This approach obviously gets A LOT of eye rolling from the audience here. But the audience here are a bunch of self selected housing geeks (myself included). How many folks are like you and I?
btw, I’ve tried to hint at my neighbor that he needs to get his property tax reassessed (currently overpaying by about $5k a year), but he still has no clue. The point is the general population is not that connected to the in’s and out’s of the real estate market, step into their shoes once in a while.
It is a great practice to test out your realtor.
Did he/she tell you that this was an OPT, and has no chance of selling at this price? That it was a set-up to help demonstrate where the real values are?
Or is he/she just wandering around like you, trying to figure it out?
In many cases, the buyers are better educated on the market than the agents, and this is a good test. Does the agent recognize the OPTs going in?
Comparables. I’m jealous. I’m trying to value a country property and the best comp is 10 miles away, has half the land and it’s in a different climatic zone. I do see agents “Buying” listings by taking them at an unrealistic price, 5055 Gilchrist 95472 comes to mind. It’s $200k too high but there aren’t any decent comps. And there are a few brokerages around that have…interesting… LP to SP ratios pretty consistently. In a volatile market what was a reasonable price yesterday may not be today, agents have to stay on top of their market.
Agreed, this is a great test of the ethics of a realtor.
tj, agents think of listings as money in the bank, right or wrong. And quite a few believe that once a seller sees no offers that they will reduce the price instead of blaming their agent. As Jim mentioned, you can specify in the listing contract that the price will be reduced to a certain amount if no offers are recieved within a specified time. Quite a few buyers balk at this. If they do a smart agent will let someone else take that listing because you will put out time and money with no return except hard feelings. On a high end property it can be quite a bit of money between the professional photography, lockbox, signs and advertising.
Tom, I was reacting to a buyer’s agent description of the overpriced listing, not the seller’s agent acceptance of that listing.
I would expect that you or Jim would show me the listing and tell me beforehand that it is overpriced, vs. other agents using it as a “setup” and attempting to exploit anchoring/recency bias.