Our friend Bernice Ross with Inman News® offers some insights on this very notion:

Persuading sellers to price their properties realistically is always a challenge. This can be especially difficult when your market is still experiencing price declines. The question is how to unhook your sellers’ price anchors and then persuade them to list their property at a price where it will sell.

In psychology professor Daniel Ariely’s book, “Predictably Irrational,” he discusses how people become firmly attached, or anchored, to ideas. According to Ariely’s research, these anchors are extremely strong when it comes to the price of someone’s home.

For example, when a homeowner sells his home for $500,000 in Los Angeles and moves to Dallas where the same home would cost $250,000, in almost every case, the homeowner will purchase a new home that is at least $500,000.

Breaking a seller’s price anchors can be challenging. Here are three proven strategies that really work.

1. Rate of absorption
A tried and true approach for addressing this situation is to use the rate of absorption (i.e., how much inventory is on the market and how quickly it is selling).

To illustrate this point, assume that there are eight months of inventory on the market. In other words, only 12.5 percent of homes on the market will sell in any given month. The other 87.5 percent will not. Sellers who want to place their properties under contract must position their property in the marketplace where they will be in the best 12.5 percent in terms of value, which is a combination of condition and price. If not, their listing will sit on the market until it expires or until they lower their price sufficiently to motivate a buyer to purchase it.

The way to close the buyers on using this approach is to say:

“Mr. and Mrs. Seller, you have an important decision to make. Will you position your property where it will be in the top 12.5 percent that will sell next month or will you position your property where it will be in the 87.5 percent that will still be listed next month? It’s your choice, what would you like to do?”

2. Use the price-per-square-foot data
A different alternative is to use the price-per-square-foot data. As a general rule of thumb, properties fall into three price-per-square-foot categories based upon their condition and location.

a. Top price per square foot
The first category is the property is either new and/or in excellent condition and in a top-notch location.

b. Midrange of the price-per-square-foot numbers
The second category is for properties that have “amenities similar to many of the homes found in this area.” This is a nice way of saying that the home is in an average location and in average condition.

c. Bottom price per square foot
The third category is there is either something wrong with the location, the condition, or both.

Now you may be curious as to how you get the sellers to accept their house is average or even less than average. There are several ways to approach this issue.

First, you can take the sellers out to look at the competition. Next, ask them which house is most like yours? If you don’t want to take them out to see the competition, another way is to gather as many interior photos of closed sales as possible. Let them choose which houses most resemble their house. You can then use the price-per-square-foot sales numbers to generate an accurate list price.

The beauty of using the closed-sale statistics (i.e., showing the sellers pictures of properties that have closed) is that it shifts the discussion from list prices to sold prices. This makes it easier for the sellers to choose a more realistic price.

3. The pricing line
The late Lee Coats, who wrote much of the training for Coldwell Banker back in the 1990s, invented what he called a “pricing line.” If you haven’t worked with this approach, it’s extremely effective. The system is fairly simple. Imagine a page with three different charts that resemble rulers marked in 1/4-inch segments. The top chart has the “recently sold” properties. The agent records each property that has sold on this pricing line using the price-per-square-foot data. The agent then repeats the process by recording the properties currently for sale on the second line and the properties that did not sell on the third line.

The sellers can quickly see the range of the most recent sales, what the current competition is, as well as how much higher priced the expired listings were on a price-per-square-foot basis as compared to those listings that sold.

When you show the seller the listings that are currently available, the closing question is, “Which line would you choose?” When properties have comparable amenities, it’s easy to demonstrate that the lower-priced listings usually sell more quickly.

The next time you’re facing a seller who wants to overprice his listing, try one of these three approaches. There’s a good chance you’ll walk away with a property that is priced to sell.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of the National Association of REALTORS®’ No. 1 best-seller, “Real Estate Dough: Your Recipe for Real Estate Success.” Hear Bernice’s five-minute daily real estate show, just named “new and notable” by iTunes, at www.RealEstateCoachRadio.com. You can contact her at Bernice@RealEstateCoach.com or @BRoss on Twitter.

Highlights include; continuous music and entertainment for all ages, balloon flights and over 60 craft artisans and commercial vendors. Check out the Quechee Balloon Festival for a full schedule of the weekend’s events.

HUD issued a press release earlier this week to announce changes to FHA mortgage insurance. The key changes are listed below. However, the ‘official’ mortgagee letter has not been released and should be published shortly.  It is expected to provide additional details/clarification.   The press release provided the following information:

Beginning April 1, 2012, upfront mortgage insurance premiums will be higher by 75 basis points, or 0.75%; and annual mortgage insurance premiums will be higher by 10 basis points per year, or 0.10%.  For borrowers with a loan size of $200,000, the new MIP will add $1,500 in one-time loan costs, plus an on-going, annual $200 increase in total mortgage insurance premiums paid.

On June 1, 2012, MIP will be updated again, increasing the annual MIP factor an additional 25 bps for loan amounts above $625,500.  Additional changes in regards to MIP on FHA Streamline Refinances are expected to occur in the June time frame.  Details on the exact changes will be described in the upcoming mortgagee letter.

This increase represents the FHA’s fourth such increase in the last two years.

All new FHA loans are subject to the increase which includes both purchases and refinances.  FHA is increasing its mortgage insurance premiums because, as an entity, FHA is insuring a larger percentage of the U.S. mortgage market than ever.

In 2006, FHA insured 2 percent of all purchase-money mortgages. In 2011, that figure jumped to 18 percent. Unfortunately, as FHA has insured more loans, it’s number of loans in default have climbed, too, forcing them to boost its reserves.

Please note these changes are for new loans.  The mortgage insurance premiums will not rise for loans already closed.

For more information on these and other changes call our very own Mortgage Professional.

Victoria Blodgett
Mortgage Advisor
Phone: 802.310.9413
Fax: 856-917-1385
NMLS# 179656