It’s over, finished, gone, and I’m not talking about the Thanksgiving Turkey. I am talking about the seismic shift in the real estate market. What’s over and done with is the growth during the past four years that saw home prices ascend the way Lance Armstrong assaulted an Alpine peak.
Now the market has cooled, big time, and the seller’s market we’ve been in – fueled by speculators, new home buyers, and well-meaning parents trying to get their adult children into the game – is gone. So are the days of buy it now or buy it higher, and those wonderful multiple offers above the asking price.
Now it’s a buyers market, with more supply than demand in most housing markets, and this isn’t going to change anytime soon (think years).
For those still interested in selling your homes, though, this is a good time to take a hard-nosed look at your options, for it’s not totally gloom and doom, if you pay attention.
Here are some thoughts. For starters, in a market where excess supply drives prices down, getting the best price means putting your house on the market earlier than does your neighbor down the street. It also means your selling price won’t be more than it would have been had you sold your house last year.
Then there’s the fact that everyone’s in the same boat in this real estate market, and emotions play a role. For example, we regret not selling sooner; we hunger for a better price than what the market will bear; we envy those who sold earlier; and we believe that we deserve credit for the rapid increase in the equity in our homes, thus believing we’ve “earned” the money from that increase in equity.
When you become captive to your emotions and insist on setting an unrealistic asking price, you become the biggest obstacle to the sale of your own home. Enter the real estate agent who would like to list your home. Agents know that selling a home is so personal and emotional that it doesn’t pay to tell the truth to unrealistic sellers. The agents also know that you will have to face reality eventually but, rather than lose your listing, they will let “Mr Market” adjust your expectations. While your unrealistically priced property sits on the market, it helps the agent show the rare buyer competing homes that are realistically priced – what a bargain in comparison to your home!!
Against this backdrop, here are some steps you can take to become a realistic home seller:
- Remember your purpose: You want to sell, so set a realistic price. When you do, real estate agents will characterize your house or condo as the one in its class that’s the best buy for the money! This is the property agents will enthusiastically show, and can confidentially tell potential buyers that your property won’t last long at this price.
- Scope out the competition. Go to open houses. Pay special attention to competition from new homes. Builders set the standard in terms of features and décor
- Evaluate competitors’ offerings on a price-per-square-foot basis. Larger homes are generally less expensive per square foot than smaller homes, so establish a dollar per square foot range for your type of property and neighborhood.
- Single story homes generally sell for more per square foot than a two story home.
- Put yourself in the buyer’s shoes. Constantly bombarded with news about the poor outlook for real estate, the potential buyer is looking for a good deal if they are going to buy now. Buyers want some margin of safety, which means the house should buy for less than a comparable sale last year.
- A poorly presented property is one more roadblock to a sale. Solicit, and listen to, honest feedback about what can be done to better show your home. On the other hand, resist the temptation to over-spend to make it attractive.
- Get an appraisal from a firm that works with local lenders. The appraisal will get you close to the way a lender will view the property. Offer the property at a 2% to 3% discount to the appraised value. This may take some fear out of the buyer’s mind about whether they are getting a good deal.
- Invest in a home inspection and do everything it calls for. Presenting a completed to-do list can ease the buyer’s mind and shorten the escrow (opportunity to back out) period. Don’t give the buyer a reason to say no when they see the inspection report.
- Resist offering extra commissions to realtors for either bringing in buyers who might pay close to listing price, or as an enticement to realtors to more aggressively market your property. Higher commissions lower the proceeds to the seller, just like lowering the price. Lowering the price seems a better tactic.
- Be prepared to negotiate after you’ve become the best value in your class. Remember, you may need to give just a little more.
- If you have done your homework and you’re sure the home is priced to sell, be patient. If no one is coming through, don’t panic and lower the price.
If you want to sell your home yourself, and save the commission, something I’ve done myself several times (even though it’s more work), here are some tips:
- In this market consider paying a 3.5% commission to a broker that brings in a buyer. Place the words “courtesy to brokers” on your for sale signs and flyers.
- Produce professional looking flyers to advertise your home.
- Go to a title company and ask for a highly experienced escrow officer. When committed to using their services during closing and follow-through, escrow officers can provide excellent information on recent comparable sales along advice on closing the transaction.
- Using a “help you sell” type of agent may be appropriate. They generally charge less than a conventional agent, but will still give you some guidance and help with forms.
- Selling a home is a very significant transaction, if you are uncomfortable negotiating, the best course may be to hire a full-service agent to do it for you.
When you get an offer:
- First, an accepted offer doesn’t mean you’ve sold your house! It’s sold when all contingencies are removed and you get the check from escrow and not before.
- Thus, beware of offers with significant contingencies. Forget offers that are contingent on the buyer selling their property to buy yours. It’s not a real offer; it will just tie up your property.
- When you get an offer with contingencies, set strict but reasonable time limits for the buyer’s approval.
- Ask for a significant (5 to 10% of purchase price) non-refundable earnest money payment. Note: a recent Wall Street Journal article reported that many buyers were walking away from deposits rather than going through with the transaction because giving up a small earnest money deposit for a better deal elsewhere made more sense.
- Be wary of the contingent sale offer even if the buyer claims that their home is in escrow. A significant nonrefundable (after contingencies are removed) earnest money deposit will give some protection.
- Beware of “low-ball buyers” who may make multiple offers, loaded with contingencies, in an effort to bring desperate sellers to the surface. When they find such a seller, they’ll abandon their other offers, using the contingencies as an excuse. To better protect yourself, find out the circumstances of your buyer, possibly through your agent. For example, find out why a buyer wants a home now. The stronger the motivation to buy, the better the odds of closing the sale.
- When an offer comes in, don’t stick a “pending sale” sign in the ground. The sign takes your house off the market. Continue to market your house for back-up offers, should the deal fall through.
In this world where the only constant is change, selling your home is possible in any market condition. So, Good Luck, and a have happy holiday season.