This is me in the Arizona Republic (permanent link):
What can sellers do differently to get their houses sold?
There are three houses for sale on my street. All three are comps to each other — around 2,000 square feet, three bedrooms, two baths. They’re priced within a thousand dollars of each other.
House number one is in excellent shape, a turn-key value. It isn’t selling. House number two is in decent shape, but it has a western exposure. It isn’t selling. House number three has been owned as a rental for years, a fact that is completely obvious at a glance. The lawn goes for weeks at a time without being mowed. Amazingly enough, this house isn’t selling either.
Clearly, even the best of the three is overpriced for this market. How can we tell? Because it isn’t selling, even though it’s the pick of the litter.
What does that say about house number two? And what conclusion might the seller of dowdy, run-down house number three draw, if he were of a mind to draw conclusions?
Here’s a better question: What might the seller of house number three do differently, if he actually wants his house sold?
It’s satisfying, I suppose, to blame “the market.” Too many sellers. Too few buyers. The lenders are in turmoil. What can you do?
My answer: Whatever it takes.
Homes are being sold every day. There are fewer buyers than there were a year ago, a lot fewer than two years ago. But even though too many homes are on the market, some of them are selling.
Which ones? Those homes that offer the greatest perceived value to buyers.
And where is that value perceived? In the quality of the home or in a bargain price.
The seller of house number three can beat “the market” in one of two ways. He can refurbish the home to the quality of house number one, then undercut it on price by five or ten percent. Or he can leave the house the way it is — and cut the price by twenty percent.
Either way, “the market” is ready to make deals. All motivated sellers have to do is meet it halfway.
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Patrick Hake says:
Here’s an idea. What if the MLS by rule gave 30 days at a specific price. If the home does not sell, the seller can either reduce the price by a minimum of 1% or withdraw it from the MLS.
Can you really count house number three as even being for sale. At the very least it is like a limit order in the stock market. If prices reach a point, it will sell, otherwise it will just sit and never sell at current market price.
What if stock brokerages had statistics for the number of outstanding limit orders? Would they count that as the inventory of stocks for sale?
There are too many people looking to sell a nickle for six cents, when the fact is that the shiny dimes selling for 9 cents are the only homes actually selling.
August 31, 2007 — 9:02 am
Malok says:
Patrick: the sliding scale reduction you propose might work for typical cookie cutter neighborhoods, but it would not be appropriate for higher end homes/farms that usually take longer to sell in the first place.
Back to the article: The thing to remember is real estate agents generally don’t set the price for homes. Buyers do. And in today’s market, what a home sold for previously, becomes less meaningful that what it will sell for today. And if buyers aren’t willing to pay a particular value for a property, either its not getting the exposure through its marketing effort to generate traffic to see it, or its overpriced.
August 31, 2007 — 10:04 am
Patrick Hake says:
I think you hit it on the head Malok. The standard practice of of using sold comparables to determine an asking price is no longer enough. Agents and sellers should look at the active competition and pending sales to determine an appropriate price.
Greg’s example of three houses on the same street is a good example. It is likely they were all priced using a past sale in that same neighborhood, rather than looking at active listings.
I like to set up an automated search in the MLS for my seller clients that e-mails them new listings and price changes in the area that are direct competition with their home.
I find that sellers will contact me to make price reductions, based solely on these updates.
August 31, 2007 — 10:22 am
RealEstateInvestorGirl.com says:
It is time for agents and sellers to think outside the box. The best scenario for any of the three houses is to offer owner financing. Either full, or partial, or lease option, subject to, or by a note. The note method can be a simultaneous close. This can be with an existing mortgage in place, and making one or two notes. There would be a discount on the note, but the home can be sold for a higher price instead of lower price because of the financing available.
I love this blog, but also read my blog for an investor/non agent point of view.
August 31, 2007 — 11:07 am
hohochi says:
Regardless of what any of the 3 homes are priced at, buyers believe prices will continue to drop significantly and with good reason.
The other major flaw in believing home #1 is a shinny dime is that the hyper inflation in the real estate market has put most homes out of reach for most people.
If the house was 3 pennies in 2001, but now sold as a dime when nobody has more than a nickel, it won’t matter what the price is until it drops below the nickel.
You can shine it up, put a spotlight on it, have the slickest listing agent presentation and show it off as a shiny dime, but the nickel population is not fooled.
Sellers have no real options if they bought the house for 7 pennies because they are going to lose out when their toxic ARMS reset and continue to deteriorate the market. They can look to the Real Estate agent who pushed them into the 7cent ARM when they could only afford the nickel.
What is more likely is that the block will end up with 3 additional nickels represented as dimes before any of them sell, then in the end, sellers will be forced to short sell at 4cents or walk away after being foreclosed on.
August 31, 2007 — 12:45 pm
Patrick Hake says:
So what you are saying hohichi is that -you- are not interested in buying right now. I guess they will have to sell it to someone else.
The analogy I made makes the assumption that a dime is market value (whatever that is) and that in order to succeed in selling the home they will need to market the home at whatever that market amount is, minus enough to make it a better value than other listings. This along with putting it in better condition than the competition will make it more likely to sell.
Home sales are down by a lot, but homes are still selling.
August 31, 2007 — 2:37 pm
hohochi says:
“The analogy I made makes the assumption that a dime is market value.”
The anology I made is that a dime is precieved by the real estate community to be market price but the level the inventory will have to reach to break out of the situation is a nickel. Sellers think its a dime market too because they can’t afford to lose money, but they bought too high with toxic loans in the first place.
“Home sales are down by a lot, but homes are still selling.”
The glut of homes for sale in maricopa county is what? 18 Months supply and getting worse.
The only way this inventory will decrease is for home prices to decrease to affordable levels.
Buyers are few, Sellers are scared and sticky downward prices will eventually cascade exponentially.
Renting is a much better option for people right now. They are waiting on the sidelines for affordability. Who wants a 50 year loan? When you can rent a 500K home for 1200 a month, why buy?
When the nickel comes back, people will open their piggy bank. As it is, the dime is tarnished.
August 31, 2007 — 3:46 pm
Michael Cook says:
I also think boiling it down to two factors takes out other potential options. Buyers dont buy because they either dont have the money, dont like the home’s value proposition, or think they can get a better deal by waiting.
If more buyers are in the last category its tough, but as you said people are still buying. If a buyer has the pick of the litter, it might also simply be location. The house could be on a bad block or perhaps better locations have come down in price. Things like seller financing and price slashing are great ideas, but some times if at all possible, it may simply be best to wait. If its normally a good market, it may only mean waiting until next summer, if its a bad market it could mean finding a renter to put in the place and waiting several years. Now is a great time to take a wait and see approach if at all possible.
September 3, 2007 — 5:39 am
Shell Smith says:
I think your point about blaming “the market” was a great point. I am constantly hearing people complain about the many houses for sale on their streets – and nothing is selling. But I have personally seen houses sell like hotcakes in my area Illinois homes for sale – because people are willing to do what you said and meet the market half way. I think the house #3 would be a sticky situation to be in, but it’s better then the alternative of having to foreclose their house.
I love your reply to these question –
“My answer: Whatever it takes.”
Thanks for the motivational boost!
May 19, 2008 — 4:01 pm