I’ve long been interested in flipping. I first read about it as a young man without any capital to get started with. Despite what the late night TV shows boasted, I just didn’t think I could really do it with only one or two thousand dollars.

As I’ve grown and become a home owner myself, I watched shows like Flip This House and Property Ladder to get my flipping fix. I’m a frugal person, but there is a time and a place for everything. When you go “tile-imitating” linoleum in place of true tile floors, or cheap out on other large items on the “things to fix/replace” list, you lower the amount you could sell at. Especially in a neighborhood that warrants the more expensive repairs and additions.

If there’s one thing I’ve learned about real estate listings, it’s that your first listing is critical. You want it to look great, be represented well in photos and advertising, and you want it to be priced perfect. Ignore one or all of those factors and you risk a bad listing that will eventually be replaced with another listing, which makes your house look like it has problems selling. Even if you do it perfect the second, or third go-round – you’ll never get the top dollar you wanted if it is shown in the MLS as a new listing out there for the first time pretty and priced right.

Greg Swann shares his story of such a listing. What happens when you ignore the advice of a seasoned agent during a flip and try to do better yourself? Well, how about losing about 100,000 green ones?

About fifteen months ago, we were preparing to list a home for someone we had known for quite a while. The house was a cosmetic flip in an excellent location. We had been consulting with the seller for months to get the repairs and upgrades done the way we wanted them. The seller had great equity, even if he were to sell it at the fix-up price. But he kept trying to cheap out the remodeling, which we thought was the wrong thing to do in a luxury location.

We even paid to have the home inspected, pre-listing, to get another set of eyes on the problems we had identified. The major items on the punch-list were addressed, but not in a way appropriate to the price-range of the neighborhood.

Okayfine. There are listings you can’t get away from — family, old friends, past clients. So knowing that close-enough was going to have to be good-enough, we priced the house as it would be delivered into a buyer’s market: $425,000.

The seller wanted $475,000, which would have been easy to get if the home had been improved to the quality of the location. But it hadn’t. Whoever bought it was going to live in it as-is, or, more likely, they were going to spend that extra $50,000 to bring the house up to its true potential. Ether way, there were competing listings at both prices points, so no one was going to confuse the one for the other.

At $425,000, we could have sold that house in 30 days or fewer, even against all the competition. Lucky us, the seller let us off the hook. He insisted on $475,000, by phone, and he got so mad that he hung up on me.

Dang! I lost a $475,000 listing, which at 3% of never-ever-sold would only have netted out to a loss of around $2,500 for us, not counting our labor.

It takes us a solid week to get a home on the market — photos, floorplans, signs, web site, open house cards, etc. The house was listed the next day — for $479,000. The extra $4,000 might have been an aggravation tax.

The first listing expired in 90 days. That would have been our $2,500, plus a big fat juicy strike-out in a neighborhood full of pricey homes. As far as I’m concerned, the absolute worst form of marketing for a high-end Realtor is not selling the home.

The second listing expired 180 days later. By the end of that listing, they had finally gotten the price down to $424,000 — cutting $5,000 at a time, chasing the market down but always from an above-market price. By the time they got to where it should have been listed over a year ago, it was too late. Does days-on-market matter? I think it does matter, psychologically, but I know it matters in a declining market. If you aren’t going to cut your above-market price to a number very aggressively at or below the current market price, don’t bother. You will not screw the buyer in this market.

Anyway, the house finally sold on its third listing — for $379,000. That’s $46,000 less than we could have gotten for it fifteen months ago — fifteen months of mortgage payments, maintenance, yard work, opportunity costs and heartache.

We were lucky to get fired, rather than having to fire the seller. But we have learned from bitter experience that we simply cannot take a listing that will not sell. I get the idea that some Realtors will take just about any listing, at any price, hoping either that the seller will come to Jesus eventually or that the sign in the yard will pull in enough business to compensate for each doomed listing.

Ouch. An almost guaranteed $475,000 sale ends up going for almost $100,000 less. Even a little more once you throw in all of the fees and mortgage payments made to keep the house on life support during those three listings.

As Greg points out, when you do things wrong the first time, you end up chasing the market. If home prices are declining, and you continue to price at the current price points, you’ll likely have to drop the price again. Buyer confidence has a lot to do with that.

However, all things said.. at least he was actually able to sell the property!

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Comment by Razor
2007-08-12 01:53:42

So if the realtor knows best here why isnt he doing the flipping instead and making the money?

Comment by Ron J
2007-08-12 09:23:20

You’d be surprised how much work can go into a rehab. I’ve known several agents managing rental properties or flips, but because to do it right can be very time consuming, most agents I’ve known like to be available to clients instead of contractors.

Find that middle path though and with the expertise needed, you can make a good dollar.

Comment by Noreel
2007-08-25 17:22:02

First off not everyone can do everything.
Thats like telling some kid who goes to college “go drop out and become the next Bill Gates”.
It silly to even think like that.

Real Estate Agents job is to help management the sale of the property.
Their job is not to buy a house for $100,000 and sell it for $150,000 that requires a different skill set.

The seller of the home can get away with that behavior is the market is a red-hot sellers market.
I remember in Temecula, California during the white-hot sellers market a few years ago homes which had visibily large cracks on the side of the house were selling in a months time. Thats how hot the market was.
But trying to do something on the cheap as a seller when your living in a buyers market is just like shooting yourself in the foot!


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