The Goldilocks Approach to Pricing: Not Too High, Not Too Low—Just Right

As a rule, people who sell their real estate holdings want to receive top dollar, whether it’s a family residence or a commercial building. The challenge is how to price a property to sell relatively quickly without undervaluing it.

Ultimately, the market will determine the value of a property, and the market is fluid. Value is based on what buyers will pay the day they look at a house, and unfortunately for you, the seller, buyers do not take into consideration what you think the property is worth or the amount of money you need to get out of it.

A common misconception when determining a property’s listing price is the belief that it is okay to start too high, figuring you can always come down. Overpricing a home is risky and can ultimately result in it selling for lower than fair market value.

Most people fail to realize that there are a limited number of buyers looking for houses in a given price range at any one time. Serious buyers often have a sense of urgency, so when a new property goes up for sale, all those looking for a home in that price range will probably see the property within a week or two.

If your home is overpriced and no one makes an offer during the first few months, what can you do? One option is to wait for more buyers to enter the market. This can be a slow process and your home will become less appealing as its days on the market pile up. Your property will be viewed as a stale listing and people will begin to wonder what’s wrong with it.

Another option is to lower the price in hopes of recapturing the attention of the buyers who have already seen your home and think it is overpriced. The problem with this approach is that most buyers pay more attention to new homes coming on the market than to the homes with price reductions. Even real estate professionals can miss price reductions that make a property a great deal. Once a listing gets a reputation as overpriced, even after months of lowering the price, it can simply be overlooked.

Prior to 2007 (before the real estate crash) most buyers got pre-qualified for the biggest loan they could and set that as their target price for purchasing a home. In today’s market, many buyers take a more conservative approach. They base their price range on their own comfort zone, not necessarily what they are pre-qualified for. If they are getting a loan (as almost everyone does), their lender will order an independent appraisal to confirm the home’s fair market value. Before a lender is ever involved, buyers often research home prices on the Internet to make sure they are not overpaying. Regardless of how much you paid for your home and regardless of how much you’d like to receive for it, buyers will not pay more than fair market value.

What you can control is how attractive your house is the moment it hits the market and makes its first impression on buyers ready to make offers. Pricing will determine the number of buyers who look at the house and ultimately whether or not they choose to make an offer.

On the bright side, the market will rarely allow you to under price your home. If buyers feel your price is too low, you will receive multiple offers. The market will push your price to the highest price the market will bear. So let go of the idea that overpricing is a good strategy—that it will allow you to see if anyone will bite. It isn’t and it won’t.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Selling in Winter

Many people believe spring is the best time to sell a house, so they take their property off the market during winter. It is precisely this behavior that could make your property a hot commodity during the coldest months.

As I compare housing statistics from April 2015 to statistics in October 2015, I see some interesting trends. January through April, the average time on the market for residential properties in inland Mendocino County was 113 days. Through October, the average time on the market was 91 days. Homes are selling faster now than they were in spring. During the first four months of the year, 75 homes sold. Through October, 217 homes sold; that’s an average of 19 homes per month for the first four months compared to 24 homes per month through October, or put another way: a 26 percent increase in the number of homes selling per month. This market is heating up and, therefore, this suggests it is not a good time to take your property off the market.

I knew a real estate agent years ago who consistently sold more houses in the month of December than during any other month. Why? Because, he explained, everyone else stops working. As the holidays approach, sellers do not want to be bothered with the hassles of having their property on the market, and Realtors—who also have families and personal lives—tend to slow down, too. When fewer homes are on the market, the laws of supply and demand are in your favor: fewer available homes means less competition for your property. If you’re motivated to sell, do not let the holidays scare you away.

This is not only a good time to sell compared to last spring. It is encouraging to look at housing statistics from a year ago. Last October, the median home price in inland Mendocino County (excluding Hopland) was $308,000. This October, the median price was $345,000. That’s a 12 percent increase. If you’re a buyer, I’d say, get into the market while the getting’s good—before prices rise even more, not to mention interest rates.

Bear in mind, “median” is not the same as “average.” Median means there are as many properties with a higher price as there are with a lower price. If you have ten houses evenly spread between $300,000 and $400,000, your median is $350,000. If eleven more houses are put on the market and they are all priced at $290,000, the median price is $290,000.

Average means you add the total of all the prices and divide by the number of properties. Averages can be more dramatically influenced by outlier properties (super expensive or super cheap).

Market forces can certainly influence the median housing price. If there’s a run on higher priced or lower priced homes, the median price can change, but the individual price for many houses will remain consistent. Let’s say COSTCO is finally allowed to open its doors in Ukiah, and they pay salaries between $30,000 and $40,000/year, so a dual-income family makes $70,000. This means the family can afford a $400,000 home at today’s interest rates, so the increased demand for homes in that price range may drive up prices for houses between $350,000 and $450,000. If you are selling a mobile home or a million dollar ranch property, dozens of new COSTCO employees looking to buy a home will not affect the value of your property much.

Regardless of price, the financial factor that always affects the housing market is interest rates. According to Ginny Richards at Sterns Lending, rates are down about three-eighths of a percent compared to last year. I think rates will remain stable until the presidential election is over next year, but my crystal ball doesn’t always work, so don’t count on it.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

 

 

 

 

 

What Happens If You Sign a Contract, But Didn’t Mean It

When it comes to real estate contracts, I always suggest that people involved in the transaction do three things: read and understand the contract, make sure the contract accurately reflects their intentions, and be sure they can abide by its terms. This applies to buyers and sellers, but it is usually buyers who change their minds about a sales agreement.

The reasons vary. Sometimes buyers get in over their heads financially. Before they sign a contract, they should ask themselves: how much can I afford to pay, both up front and every month? Which inspections do I need? How much will those inspections cost? Are there contingencies in the contract that allow me to walk away if the inspections show the need for a lot of expensive repairs?

Buyers who get prequalified or preapproved for a mortgage loan are usually glad they did. While this process cannot prepare them for unpleasant surprises resulting from inspections, it does give them a realistic idea of how much house they can afford.

On the sellers’ side, several decisions should be considered before entering into a sales agreement. The seller must figure out whether the property is selling at the correct price. This issue has two dimensions: is the price fair (does it reflect the market for this type and size of house in its neighborhood), and just as importantly, do the sellers want to sell the property at this price? If the sellers are not truly committed to selling for any reason, whether it’s strong emotional ties or a fear of moving, they need to be honest with themselves, because once they sign the purchase agreement, they are committed—no ifs, ands, or buts.

Unlike the buyer who likely has contingencies built into the agreement, it is rare for a seller to have contingencies. Once in a great while, a seller will include a contingency requiring approval from a tax or legal advisor before the contract can be executed, or they will make the sale contingent on finding a replacement property, but these are unusual and can generally be dealt with before the property is listed for sale. Sellers with contingencies typically have a much more difficult time selling their home, which translates into a lower sales price.

So, whether you are a buyer or seller, before you sign a contract make sure you’ve read, understand and can live with the commitment to which you are agreeing. A few Realtors in my office have recently dealt with sellers who simply changed their minds after they signed sales contracts. This did not work out well for those sellers. They went to court to try to stop the sales, but were unsuccessful: the properties closed escrow and the sellers were required to pay the buyers’ attorneys’ fees. They lost the court battle and ownership of the property.

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If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.