Bait and Switch in Real Estate
Bait and Switch in Real Estate
You’ve probably heard of the bait and switch game in sales and perhaps have some first-hand experience. It is a tactic where a product is advertised at a low price to get a buyer’s attention. Once the buyer is on the hook, there is an attempt to switch him to a higher-priced product or service. Car dealerships often use this trick by deeply discounting a popular barebones model vehicle to get customers in the door.
Lenders also use the bait and switch model to lure customers. For instance, mortgage companies continually advertise their lowest interest rate, but the reality is only a tiny percentage of consumers will be able to qualify for that rate. Car manufacturers frequently offer 0% financing on purchasing a new vehicle, but a high credit score is necessary to allow. It’s all in the fine print, which most people do not read.
Here is What Bait and Switch Looks Like in Real Estate
Scenario 1. You meet with three agents and listen to their marketing plan to sell your home. Agent A suggests a list price of $350,000, and agent B is in the same price range and says $360,000. But Agent C tells you he would recommend listing your home at $400,000.
Red Flag. Some Real estate agents practice a form of bait and switch when they attempt to acquire a listing from a seller. However, rather than enticing a homeowner at a low price, they bait the hook by suggesting their home will sell at a higher than market value price. If you list with this agent when your home doesn’t sell a few weeks later, he will suggest a price reduction.
Listing below Market to Create a Bidding War
Scenario 2. A seller wants to sell his home at a price point that will move his property quickly. It’s a seller’s market, so Agent A suggests pricing it below market value to create a great deal of interest and result in a bidding war to bring in a higher than market price.
Red Flag. Sometimes this works but not always. Also, there is no reason to sell low in a market where the seller has a distinct advantage. A desirable property priced at the market will likely receive more than one offer.
Real Estate Agent Says They Already Have a Buyer
Scenario 3. Agent B meets with you to discuss listing your home. During his presentation, she tells you that she is working with several pre-approved buyers looking for a home like yours. If you list with her, she will sell it very quickly.
Red flags. There are a couple of things off-putting about this situation. First, ask the agent how she plans to handle a situation where she represents both the buyer and the seller?
When one agent is handling both the purchase and the sale of a property, it is called a dual agency. The practice is illegal in 8 states, Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont. In Minnesota, it is legal when both the buyer and seller are made aware of the situation and give their consent.
While this may initially sound perfect, you don’t know if the buyers exist? If they do, Agent B can’t be sure they will want to buy your home since they have not seen it. The responsibility of a listing agent is to present your property to as many buyers as possible and ensure you get the best price. It doesn’t matter who is bringing the buyers to the table.
How to Avoid Bait and Switch When Listing Your Home
I’ve said this many times before, but it always bears repeating. It’s a fact of life when you buy or sell a home. The agent you hire to list your home for sale can either facilitate a smooth and seamless transaction or cause you to feel every bump in the road to the closing table.
When choosing an agent, it’s OK to ask for recommendations from family and friends. However, do not hire someone based solely on that criteria, and do not list with the first agent you meet. Talk with at least two agents, preferably three. Compare marketing plans. When an agent suggests a selling price, make sure market data supports it with a Comparative Market Analysis. Ask your potential Realtor how many homes he has listed and the average number of days they were on the market. Ask what percentage of original list price those properties brought.
A home for most people is their most valuable asset. Please don’t trust its sale to the first agent that comes along. The time you spend choosing your real estate professional is the best investment you can make when selling your home. Another fact of life when your home is on the market: It’s a stressful situation even under the best of circumstances. Hiring a Realtor who puts clients first in all aspects of the process will be your best defense against panic attacks when something doesn’t go as you plan.