The French Enlightenment writer, Voltaire, said, “Each player must accept the cards life deals him or her: but once they are in hand, he or she alone must decide how to play the cards in order to win the game.” Too often sellers of homes misplay their hands because they act on emotion and not objectivity. Most often it’s because they do not understand or purely disregard the relationship of cost and market value. A good REALTOR® can help in recommending the right price for your house with a Comparative Market Analysis (CMA) – but it’s up to the seller to make the winning decision.
Let’s back-up for a moment and establish the correlation of cost and market value to the quote above as it relates to home selling and making the right decision. Well, one could say when selling your property, the cards you accept are the cost of your home – what you paid for it based on location, size and amenities coupled with any improvements. The hand you play is how you obtain a market value price and sell your home – determining what a reasonable group of buyers would pay to purchase your home based on interest rates, recent home sales and current sales prices of similar properties in the last six months. Similar in order of significance traditionally means location, size and amenities. Accordingly, winning the game is obtaining a fair market value sale in a short amount of time.
The only way to do this is by listing your property at the current market value as soon as it goes on the market based on a CMA. Again, that means at a similar price to properties with comparable location, size and amenities to each other. The CMA is an opinion and not an appraisal. Good REALTORS® can generally estimate if a home will appraise at its current listed price. Appraisals are done by a licensed appraiser and are only good for six months. Lenders will not provide funds that exceed an appraisal which is another reason to properly price your home. Back to the CMA…on average, you want your listing price to be at the top of the recently sold and at the bottom of properties currently on the market. Why? Homes accurately listed at market value provide more prospective buyers through agent enthusiasm. Competent agents know value when they see it and will work diligently to sell a realistically priced home. Secondly, savvy buyers have access to vast amounts of information and tend to have a better appreciation of market value. If your home is overpriced, agents will not waste their time showing it to potential buyers. Secondly, you will attract the wrong set of buyers as they are expecting more for their money. Consequently, your house will generally stay on the market longer which leads to negative perceptions of your property in buyer’s minds. Why hasn’t it sold? What’s wrong with it? It’s been on the market so long the seller’s must be willing to accept a low offer (below market value). Additionally, the process will continue to take time away from other endeavors. But why do sellers often avoid accepting the agent’s opinion on the current market value of their home?
Sadly, most people fail to recognize the hard fact that cost and market value are not related – the two concepts are totally independent. Just think, if you inherited a house for nothing (your cost) would you give it away for nothing? You would want to sell it at market value. How about the stock market? Do you always get the same price you paid for a stock when you sell it? No, sometimes it’s more and sometimes it’s less. The result is based on the market. Selling and buying homes is no different. In any real estate transaction, the objective is to sell at the price most people will pay – not the highest price that one person might pay. An expert REALTOR® is your best bet for obtaining the best price – but that’s predicated on you taking their advice. The current market sets the price, not the REALTOR®. All the real estate agent does is provide you a snapshot of the market at that time, similar to how a doctor provides an x-ray as an assessment tool.
Believe it; a good REALTOR® has no interest in overpricing your house. It’s as much a drain on their resources as it is yours. Typically the more your house sells for the higher the commission for a REALTOR®, right? However, if your house never sells then the REALTOR® never receives a commission. Real estate professionals want to maximize time, get the best deal for all involved and earn a living like everyone else. It’s your job to make the best decision based on their advice. But my REALTOR® let me list at a higher price than their CMA recommended. Just as parents do with stubborn children, an agent may let you learn from your error in judgment – and the REALTOR® suffers along with you. Understanding several pitfalls to avoid can help you remain focused on making the right decision.
Seller enthusiasm can be a detriment when it comes in the form of emotion. “Our home is better than others; we paid more when we bought it; we need more for it based on our improvements; we are moving to a higher priced home and need the money!” Objectivity is paramount – a CMA. If you don’t like the answer, then it’s time for a tough choice. You must decide if you can hold onto the property until the market changes or sell at the current market value. Other faulty preconceived notions are that by inflating the price a seller may catch the lone foolish buyer; or that building in additional barging room will offset underbids. Executing these concepts will only extend the time your house is on the market and thereby lessen the enthusiasm buyers and agents have to sell your home along with negatively affecting everybody’s time and resources. If you are able, there can be an advantage to selling in a challenging market, especially if you are looking to buy.
Most people selling their home are also preparing to buy a home. Real estate statistics show that most people go up about 50% in price when buying another home. For simplicity’s sake, let’s say you see a 10% reduction in the market value of your current home – you paid $400,000 and you sell it for $360,000. However, the house you are purchasing is also in the same market and was priced at $600,000 but now sells for $540,000. In this example, you would have saved around $20,000 (you lost around $40,000 on the sale of your house but saved around $60,000 on the purchase of your next home). This is one of the hidden advantages to selling and buying in a challenging market. Additionally, in some instances, a motivated agent may adjust a commission on one end of the deal when helping the same client sell their home and buy another.
In the end, it’s not what you paid for the house; it’s what the market will pay for your house. Being objective about hour home will equal a faster sale, assist in helping you finalize plans for your next house, provide less inconvenience, provide more prospective buyers through agent enthusiasm and serve as a magnet for good offers. In best cases it will provide higher net equity. It’s your choice.
image courtesy of ktylerconk