As a Realtor, one of our biggest frustrations is dealing with the unrealistic expectations of a seller. Sellers are notorious for overpricing their homes. The market is saturated with thousands of properties that will never sell without a price adjustment. Lack of comparable sales, poor or no Realtor representation, believing improvements are worth more than they really are, no knowledge of the real estate market, ignoring current competition, needing a certain sales price based on personal expenses and not staying on top of the current market conditions are a few reasons sellers overprice their homes.
What is market value? International Valuation Standards defines market value as "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion."
What market value is not
- It is not the price you paid for the home plus improvements and real estate commissions.
- It is not how much your friend, in-laws, attorney, accountant, sister with a real estate license, neighbor or anyone else thinks your house is worth unless they are willing to buy it at that price and you are willing to sell it at that price.
- It isn't what you paid for the home plus a needed or historical rate of appreciation.
- It isn't more than what your neighbor's house sold for because you like your house better.
I have empathy for today's seller since I recently sold a couple of rental properties that I owned. They closed in the third quarter of 2008 and sold for roughly 60% of the value that I could have sold them for in the market highs of 2005. So I know what it feels likes to lose equity. It is an ugly reality of the market we are in. Here are some things I kept in mind when I was establishing my asking prices.
1. Be objective
Yes, you are selling your home and all of the great memories and experiences that you have had but try to be as objective as you can. Don't factor those great memories into the price tag of your home. Buyers are more concerned with location, quality, size and condition.
2. Forget about what your home used to be worth
Like the stock market, the real estate market changes daily. Homes sell, expire and new competition comes on the market. Real estate prices don't move as quickly as stock prices but nonetheless the market does change. I am writing this in November of 2008 and just about everyone's home was worth more three years ago. Concentrate on what your property is worth today and what it will be worth in the next six months, not last month or last year.
3. Don't plan on finding a sucker
Many people hope that their Realtor can find that one sucker who is willing to pay more for their home than it is really worth. Does it happen? It sure does. Does it happen often enough for you to rely on? No.
4. What will your home be worth in the future?
This is a very important question since we are in a down trending market. I have seen so many people reject offers on their home only to accept much lower offers later because the value of their property declined. One of the rental townhouses that I sold closed for $175,000. Three years ago an almost identical unit closed for $310,000. Part of the motivation to sell it was because I thought that there is a pretty good chance that it will sell for around $150,000 in the not too distant future. I had a home listed for $1,200,000. We received an offer for $1,000,000 which I thought was market value and explained that to the seller. She rejected the offer and the buyers walked away. Roughly a year later she accepted an offer of $825,000. If you think home prices are going to fall further, price your home competitively from day one.
5. Analyze the market thoroughly
This is where a good Realtor can come in handy. I've worked along side some agents who put about five minutes worth of work into arriving at an asking price. In some cases that may work but most of the time it doesn't. Look at the properties currently on the market, under contract, recently sold and expired. Many people forget to look at the expired listings. These are good to analyze to see what went wrong so you don't make the same mistakes. How does your home compare with the recently sold properties? Again, make sure you are being objective.
6. More marketing does not justify overpricing
I do believe that good marketing is important in a bad market. You have to differentiate yourself from the thousands of other properties for sale. However, that does not mean that tons of print advertising, an open house every Sunday and thousands of Just Listed cards are going to sell an overpriced home. Great marketing may get a buyer in the door but that same buyer will look at your competition as well. Heavily advertising an overpriced home may only help sell your properly priced competitor.
7. Keep appraisals in mind
You don't want to go through the hassle of an offer, negotiations, inspections and packing your belongings only to find out that your home did not appraise for the sales price and the deal is off. In a perfect world you can find three recently sold similar homes. Do your homework and establish an asking price based off of these three sales. Lending and appraisal guidelines have changed dramatically. Lenders are looking at appraisals closely so don't figure on selling your home for a price that an appraiser cannot justify.
8. Get ahead of the market
In a quickly moving market you may need to make an adjustment based on market conditions. When the market was hot in 2004 and 2005 a lot of sellers were taking the last sale and adding 5-10% to that price and making that their asking price. And, it was working. Now, the opposite may be needed. Since the market is moving quickly to the downside you may need to take the last sales price and make your asking price that or 5-10% lower.
9. Be the best deal
This is not rocket science. Buyers simply want to buy the best house at the best price. Know your competition very well. Go with your Realtor and visit similar homes that you are in competition with. Once you see those properties it is easier to create value. In a down market you have to create a sense of value for buyers. They are so apprehensive about prices falling further that they simply won't buy unless they feel that they are getting value.
10. Be prepared to lower your price
You may not get the correct asking price from day one. Sometimes it is difficult because of the market or lack of comparable sales. The initial asking price is just a starting point. Do not lock that number in your head. Make sure you lower your price before your house gets stale. If your home has been on the market too long many Realtors will stop showing it because they figure that you are not a realistic seller. Are we in a tough market? Absolutely. Many of us have never seen a market like this before. Some Sarasota real estate prices have seen declines in the neighborhood of 50%. It is not a time for sellers to be stubborn about pricing. Buyers are driving this market right now. If you are thinking about selling your home in a bad real estate market keep these tips in mind when establishing your asking price. You can have all of the marketing in the world but if you are asking too much for your home it most likely won't sell.
By:Marc Rasmussen
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