Greedy home seller tips

Don't be a greedy home seller
Pricing Strategy for a Home Sale (infographic from forsalebyowner.com)

When there is a buzz about home sellers being greedy, you know home sales are doing well.  So, not surprisingly, along with last year’s record home sales came the reports of greedy home sellers.  Are you a greedy home seller?  Or are you adjusting to a market where home prices are increasing?

Greed has developed a bad rap.  Surely there is an evolutionary basis for greed.  Many believe that early hominids promoted personal and group survival by being “greedy” (although disputed by some).  Those who hoarded food, so as to have more than enough, lived through difficult winters and droughts. During times of financial prosperity, greed is looked upon favorably.  However, in the aftermath of a recession, greed is thought of as the basis for fiscal calamity.  Immortalized in Gordon Geckko’s famous “greed is good” speech in the 1987 movie Wall Street, “greed” is a cinematic vehicle to show the fine line between a healthy desire to prosper and a corrupt drive to have more than enough.

Avoid being viewed as a greedy home seller by creating a realistic pricing strategy.  Creating a pricing strategy is an art and a science.  When selling a home, you have to determine the list price.  There are many factors to consider besides recent neighborhood sales, such as condition of your home, sales trends, mortgage interest rates, economic trends, etc.  Like other home sellers, you fall into a conundrum.  If you price your home too high, then it will limit potential home buyers who visit.  However, if you price your home too low to increase home buyer interest, you may not get the price you want.

Contrary to some assertions that a home’s list price doesn’t play a role in the sale, there is evidence to suggest that it really does matter.  Lu Han and William C. Strange determined that a lower list price does increase home buyer visits – but only to a point (What is the Role of the Asking Price for a House? University of Toronto, Rotman School of Management; 2012).  They concluded that there is a point at which the home price is perceived to attract too much buyer competition, which may turn off other home buyers.  Furthermore, their data shows that there is a negative relationship between a list price and the number of home buyers: meaning that the higher the list price relative to the neighborhood, the lower number of home buyer visits, and vice-versa.

If you fear being a greedy home seller by asking for a high price for your home, there is research to suggest that you’ll let go of the greed in order to make a deal.  A 2013 study by Nuno T. Magessi and Luis Antunes looked at how the emotions of fear and greed compete internally (Agent’s fear monitors the spread of greed in a social network; Proceedings of the 11th European Workshop on Multi‐Agent Systems EUMAS, 12-13).  They concluded that greed is mitigated by the fear of loss within the confines of a social network.  When applied to a home sale, the fear of not selling a home competes with the impulse to hold out for the high price.  Deducing further, there is a need to fit within one’s social network by trying to sell a home for the most money, and yet avoid the stigma of a failed home sale.

Don’t be a greedy home seller. RealtorMag described three common home seller mistakes in a 2015 post (3 Mistakes Sellers Often Make; realtormag.realtor.org; April 12, 2015).  Included were “Not being honest with the home’s history,” “Not making a better home presentation,” and “Being unrealistic about the home’s value.”  About unrealistic home value, it was said:

“…Despite tight inventories of homes for-sale in many markets, sellers still need to be careful not to get too greedy with their list price, say real estate professionals…Home owners tend to get a much lower price when they overprice a home at the onset and then drop the price several times. The longer the home lingers on a market, the more likely it will receive a deeper discount…”

If your home doesn’t sell, you must examine your pricing strategy.  Was the price realistic, or were you too greedy?

Copyright © Dan Krell
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Home sale timing – sell for more

home sale timing
Timing the home sale (infographic from smartzip.com)

Everyone wants to know the future, especially when it comes to the home sale timing.  Home sellers and buyers want to predict home prices.  Home sellers want to know the best time to sell.  While Home buyers want to know if they’re getting a good price.  And apparently there may be a fairly reliable predictor to home prices, however it’s not what you think it is.

Several empirical studies have attempted to provide a methodology for predicting the housing market (home sale timing).  Of course there is the familiar of forecasting real estate through divorce and premarital agreements.  Back in 2013, the American Academy of Matrimonial Lawyer (AAML.org) issued a press release citing the increase of prenuptial agreements as sign of the improving economy.  The increase in prenuptial agreements meant that people felt there was value in their assets.  And this was meant to be a good sign in for housing market.

Of course there was also a spike in divorces that year, leading some to believe this to also be a good sign that people felt better about the economy because of their willingness to begin anew.  But as University of Maryland sociologist Philip N. Cohen pointed out in his November 2015 blog post (Divorce rate plunge continues; familyinequality.wordpress.com) the increased divorce activity of 2013 was a just a recession related “bump” and in actuality the divorce rate decreased in 2014.

Then there was predicting housing through internet search data, which sounds more like fortune-telling than research to be honest.  However, Beracha and Wintoki (Forecasting Residential Real Estate Price Changes from Online Search Activity; The Journal of Real Estate Research 35.3 (2013): 283-312.) concluded that, indeed, you can gauge regional housing trends through specific keyword search volume.  Given this method, I used Google Trends to look up the keyword “home for sale” for the Washington DC metro region – and it is bound to become a hot market in the next six months (maybe a Presidential election has something to do with that?).

But a better indicator of where home prices will go may be the availability of credit.  Most would argue that mortgage lending is a matter of housing demand.  However, a working paper by Manuel Adelino, Antoinette Schoar, and Felipe Severino (Credit Supply and House Prices: Evidence from Mortgage Market Segmentation; February 19, 2014) concluded that “easy credit supply leads to an increase in house prices.”  They contend that higher conforming loan limits and low interest rates benefit home sellers in the form of higher sale prices.

Adelino, Schoar, and Severino’s premise can be witnessed in hindsight as the pre-recession housing boom seemed to be fueled on easy credit.  As credit became increasingly available, home value appreciation took off.  Likewise, housing stabilized and home values appreciated post-recession as home lending requirements loosened.

Of course, many associate easy credit policies with recessions, and even the Great Depression.  However, it’s not necessarily the easy credit that precipitates the recession – but rather it’s the tightening of creditStephen Gandel (This is When You’ll Know it’s Time to Panic About a Recession; fortune.com; March 8,2016) said it succinctly, “Tightening credit doesn’t always lead to a recession. But every recession starts with that.

One may infer from Adelino, Schoar, and Severino’s research that a home seller can gauge their home sale price based on the lending environment.  Lower interest rates and loose credit points to a higher sale price.  However, tightening credit policies may point to flat or even lower home prices.

Copyright © Dan Krell

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Get top dollar for your home

Get top dollar for your home
Get top dollar for your home (infographic from LJHooker.com)

The guarantee of “Getting top dollar for your home” is a theme in many real estate ads, as well as being promised by many agents.  Of course the goal of every home owner is to  get top dollar is the goal for every home seller!  But why is this meme still prominent, and is it still meaningful?

What does “get top dollar” mean anyway?  Getting top dollar on your sale may be relative to other home sales during the same period.  Market conditions and timing are variables that may dictate your sales price; home sale prices are lower when home buyer demand wanes, as well as sales that occur during winter months.  However, other influences on sale price include your home’s physical location and condition.  For example, homes that sit on (or are in close proximity) to a main thoroughfare typically sell for less; as well as houses with deferred maintenance and a lack of updates.

Is “getting top dollar” just about listing at a high price?  The key to a successful sale is pricing your home correctly.  Proper pricing includes analyzing your local market, and comparing your home to the most recent neighborhood sales that are most similar to your home in style, size, age, and condition.  Also, looking at market trends in three and six month segments will determine a seasonal effect.

How can you tell if your home sold for top dollar?  Certainly if your house sells for more than others in the neighborhood, you might think you got “top dollar.”  But if your neighbor sells immediately after you and sells for more; your claim to getting top dollar is now in jeopardy.  There is also the home sale price conundrum: If your house sells fast with multiple offers, you might think that the list price was too low; However, if you price your home too high, you risk over pricing such that the house might languish on the market and miss the window of opportunity.

Maybe the promise of “getting top dollar” is just a marketing ploy by real estate agents to get your listing.  A top complaint by home sellers is that their agent misled them; often citing the promise of a high sales price, only to be coerced into reducing and/or accepting a lower price at a later time.  Regrettably, there are real estate agents who resort to questionable sales tactics to get business; and unfortunately, they learn these tactics from real estate trainers, and/or develop them on their own and share with other agents.

Maybe “getting top dollar” for your house is a metaphor for being satisfied.  Although you might think you could be satisfied with just selling for a high price; customer satisfaction includes other factors too, including level of service.  It has been determined that many consumers are less interested in hiring agents whose focus is about being “#1;” rather, consumers want to be treated as if they are “#1.”

Maybe “getting top dollar” is about your bottom line.  Consider that many home buyers in today’s market are seeking “turnkey” homes, where they won’t have to worry about immediate maintenance issues – and some are willing to pay “top dollar” for such a home.  Be honest about your home’s location, condition and features.  Making some modifications can increase the sales price, however at a cost.  A cost-benefit analysis of pre-listing repairs and updates may help you decide on the projects that will add to your sales net.

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Home pricing strategy and housing market shift

Home pricing strategy
Home pricing strategy (from California Association of Realtors® www.car.org)

Home sellers should be concerned about the reports of a tumbling luxury home market, and consider changing their home pricing strategy.  The stalwart of the American real estate market since the recession (and possibly skewing home price indices) is showing signs of weakness.  Leigh Kamping-Carder of the The Wall Street Journal reported that 50% more homes priced $5 million or more reduced prices during this past January, compared to January 2015 (More Luxury-Home Sellers Drop Their Asking Prices; wsj.com; April 12, 2016).  Additionally, Kelsey Ramírez reported for HousingWire about a Redfin home price analysis that indicated weakened luxury home prices; the sector realized a 1.1% annual decrease during the first quarter of 2016 (Luxury home prices decrease for first time since 2012; housingwire.com; May3, 2016).

The apparent luxury home market collapse is most likely due to an increased inventory of luxury homes, and a lack of foreign investors (who were active in the market several years ago).  The impact of reduced prices is noticeable in home price indices as well, as there seems to be a consensus that there is a hint of a slowdown of price appreciation.

Corelogic’s May Home Price Insights (corelogic.com) indicated that nationwide home prices during March increased 6.7% year over year; and projects 5.7% appreciation for next March.  Additionally, the report highlights twelve states that have reached new home price highs.  Month over month average home prices nationwide increased 2.1%; however next month’s projection is for a gain of only 0.7%.

April’s S&P/Case-Shiller National Home Price Index (spindices.com) indicted that February home prices increased at an annual rate of 5.3%, which is roughly the same as the previous month’s index.  The hot real estate markets of Portland, Seattle, and Denver realized the highest year over year gains, growing at 11.9%, 11% and 9.7% respectively. However, the national 0.2% month over month gain was not as encouraging.

David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, provided commentary about the April S&P/Case-Shiller report, saying “…Home prices continue to rise twice as fast as inflation, but the pace is easing off in the most recent numbers…While financing is not an issue for home buyers, rising prices are a concern in many parts of the country. The visible supply of homes on the market is low at 4.8 months in the last report. Homeowners looking to sell their house and trade up to a larger house or a more desirable location are concerned with finding that new house. Additionally, the pace of new single family home construction and sales has not completely recovered from the recession.”

Although the recent home price indices have not yet established negative trends, they are telling of a housing market under pressure.  Local home sellers should take note that the S&P/Case Shiller Home Price Index for the Washington DC metro area indicates a month over month -0.2% (negative two tenths of a percent) change in the average home price.  The Corelogic HPI Market Condition Indicator for the Washington DC-MD-VA-WV metro area is “Overvalued.”

If you are planning a home sale during the latter half of this year, you should be extra aware of the local market trends; paying attention to competition and general inventory.  Home pricing strategies that were common last year may not work to your advantage.  Over pricing your home could result in driving home buyers to your competition, rather than netting a higher sales price.

Copyright © Dan Krell

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Selling your home is always about the price

From forsalebyowner.com

Pricing a home for a sale is not always easy. There is an abundance of empirical research that has confirmed the many variables that affect sales price. Some influences are manageable and some are not. The top factors to consider when pricing your home to sell include location, condition, features, and timing.

Your home’s physical location is one of the top factors that will affect its sale price. Although home prices vary from neighborhood to neighborhood, your home’s location within the neighborhood could also impact the sale price. Homes located on commuter routes typically sell for less because of the traffic and noise. Even homes located just off of the thoroughfare can be impacted by the perception of traffic and noise; the sale price could be lower than a similar home situated further away from the main road.

A home can sell for more when located close to neighborhood amenities; however, the price could drop if perceived too close. Neil Metz’s research (Effect of Distance to Schooling on Home Prices. The Review of Regional Studies 45.2 (2015):151-171.) indicated that homes located close to schools tend to sell for more. However, the opposite was found with homes within 1,000 feet from schools; the home sale price decreased as the distance from the school closed in from 1,000 feet (probably due to congestion and noise). This effect is typically true for other neighborhood amenities such as shopping areas.

home repairRepairing and upgrading your home prior to listing can increase the sale price. In contrast, deferred maintenance can not only deter home buyers – it could attract low offers; especially if the home has been on the market for a lengthy period. Many home buyers are looking for a “turn-key” home, where they don’t have to be concerned about immediate maintenance; while some are willing to put in the time and effort to personalize a home. If you’re making updates to your home, consider that the quality and installation of upgrades can impacts price as well; cheap fixtures and sloppy workmanship can have a similar affect as deferred maintenance.

Your home’s amenities can also impact the sale price. For example, features such as a finished basement or deck can be appealing and add value. Even green amenities can impact sales price. Research conducted by Cadena and Thomson (An Empirical Assessment of the Value of Green in Residential Real Estate. The Appraisal Journal 83.1 (Winter 2015): 32-40.) concluded that homes that were designated “green” increased sale price by 1%, while certified green homes increased sale price about 2%; however, energy efficient features increased sales price by about 6%!

Finally, your sales price can be affected by the timing of the sale. Miller, Sah, Sklarz, and Pampulov (Is there seasonality in home prices-evidence from CBSAs. Journal of Housing Research, 22(1) (2013), 1-15) conducted a comprehensive study of home sales that occurred in 138 Core Based Statistical Areas (CBSAs are geographic population centers set by the Office of Management and Budget for use by Federal agencies in collecting, and publishing statistics) from February 2000 to April 2011. They concluded that monthly price changes can vary through the year; and homes that sell during summer months (April through September) typically sell for more than homes that sell during the winter (October through March). However, they point out that the seasonality effect could be due to weather; there is less price variance in areas with less temperature variation.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.