I had an email conversation recently with a lovely couple up on Orange County who were upset that their home wasn’t getting any viewings, much less offers. I advised them that we needed to lower the price; that it was clear that our price was being visibly rejected by the house-buying public. They thought about that and wrote back, “We don’t think price is the reason no one is coming. We have a unique house in an area with lots of homes for rent and for sale.”
It occurs to me that many home sellers believe the same thing—that all real estate agents know is how to lower a price and there’s no rhyme or reason behind it. And it’s that thought that inspired this blog.
First, sellers should never get too attached to a price, even one that their agent initially put on the home. The best we can do is estimate value based on similar homes that have sold in the past three to six months. We need to try and replicate the thought process that bank appraisers themselves use when determining if they will give your prospective buyers a mortgage. Unless we are purchasing it ourselves, we can, in no way, guarantee value. Market value is determined by what a purchaser is ready, willing and able to pay in an arms-length transaction. We can estimate, we can predict a range, but we are not clairvoyant, nor are we magicians who can suddenly create value to compensate a seller for what they “put into the home” or to cover the amount of their mortgage. To quote an overused saying, “It is what it is.” If you bought Disney stock at $65 a share and when you need to sell it, the price is $49 a share…can the stockbroker get you a better price? Real estate works the same way.
The best way to come to terms with a price that might be lower than what you were expecting for your house is to put yourselves in the mindset of a buyer. In many cases, you too will be purchasing a new home right after selling your current one, and even if you’re downsizing or have all the money in the world and are buying a larger or more lavish home, it’s likely you will still want to get the best value for your buck.
Consider the six reasons homes don’t sell and which ones can be changed:
1) Location: Take two identical houses, one that’s in a lovely upscale neighborhood and the other on a double yellow-lined street next to a cemetery. What will cause the second house to sell first? Price. And unfortunately, the location of a house is a feature that cannot be changed.
2) Condition: Take two houses on the same street with identical amenities except one has been well maintained and the other is outdated and in disrepair. What will cause the second house to sell first? Price. The same holds true for the typical house versus the one with the unusual, quirky layout. Buyers will adjust their teste and preferences if a deal is just too good to be true.
Luckily, condition is something that can be changed and if you are willing to bring the home up to “selling standard” (new windows, new roof, updated kitchen and baths, refinished floors, landscaping) it will likely sell faster or for more but it’s unlikely that you’ll recoup every dollar of the investment.
3) Access: Take two identical homes located right next to each other. One has a lockbox is easy to view. At the other home, the owner is requiring their agent to show the home personally and is only available to be seen at odd hours with 48 hours’ notice. It’s likely that the home with easy access will sell first unless the second home is priced so attractively that buyers refuse to let that good deal get away. Luckily, this is a condition that can be changed by sellers so it’s easier for buyer’s agents to show the home.
4) Market Condition: In a down market, the houses that will sell first are the ones that are priced too attractively to ignore. Market Condition is something that only time can change.
5) Marketing: There’s an old saying that you can’t sell a nickel for a dime. Great marketing is vital to expose a home to the buying public but when a house is priced right, it might sell on the first day it’s offered, without all the bells and whistles an agent can provide. Conversely, a home that’s overpriced won’t sell, even if the agent takes an hour-long advertisement during the Super Bowl. All that extra marketing will do is announce to more people that the home is overpriced. A seller can certainly ask his or her agent for better pictures, staging and more advertising but the very best marketing advice the agent can provide is an accurate price for the home.
6) Price…yup, it all comes down to price. The price has to be right for the condition and location of the home, with the amenities it has versus those of competing and already-sold homes. Is that “giving the house away?” Not at all. It’s being realistic. Insisting your house is worth thousands more than what similar houses have sold for will do nothing more than cause you frustration and a lot of empty Open Houses. If you add amenities and improve condition, you can likely charge what competitors are charging. And just as you, as a new buyer, will evaluate every house you see against its competitors in order to get the best bang for your buck, that’s how your potential buyers are evaluating your home.
Here’s an informal rule of thumb: you should expect to get one offer for every ten showings, even if it’s a lowball offer that an agent can negotiate out for you. If you are receiving a lot of showings but no offers, you’re provably 4%-6% overpriced. Very few showings, no offer—you’re off by 6%-10%. And no showings (and obviously no offers), your pricing may be off by 10%-12%.
A marketing plan is a fluid document, it changes as the market changes. If you are the only home for sale in the area and you’re priced at $350,000---and then the next day, four houses come onto the market and are priced from $300,000-$340,000, then conditions have changed and a new Comparative Market Analysis is in order. Don’t assume you can price the home and just let it sit. Also don’t assume that the best course of action is to start high so there’s “room to come down” later. More about that in a future blog.