This is NOT the same market we were in 2 years ago. Because there is an over saturation of inventory for both re-sales and new homes, it is imperative that a seller price their home effectively from the get-go. Homes are sitting longer on the market than they have in the past 8 years and the seller is left to ask: "What can I do to make my home sell faster while still getting a price I am pleased with?"
First, they must get out of what economists have called "the greed factor." Determine a "bottom line" that is realistic and acceptable yet affordable to a potential buyer. Don't say "but my neighbor sold their home for X amount last year...why should I price my home below that? Shouldn't it be worth more?" The reason is simple. This is not the same market it was when they sold their home. There is too much competition out there and too many sellers are continually lowering their original sales price in order to get their home to sell. The first two words you see in 65% of the listings are: PRICE REDUCED. In order to avoid any extra "days on market" price the home correctly to begin with so you won't be in the 65% that has to lower their price later. In addition, sellers are offering incentives to make their home sale more appealing to potential buyers. They're offering new cars, cruises, subsidizing all buyer's closing costs, plasma TV's, paying the first years HOA or Condo dues along with monetary bonuses to the buyer's agent. You never saw this two years ago.
Historically, homes see an increased value of 5-7% annually. Between 2001 and early 2005, we witnessed the Washington DC metropolitan area housing market experience a growth in equity between 20-35% annually (the result of which placed well-qualified buyers out of the market in this area and home sales hit a wall.) Lenders have gotten creative with loan programs that have enabled buyers to purchase homes that they would not have qualified for and simply could not afford without the aid of "creative financing" (interest only loans, ARMS, 40 year mortgages, etc.) The housing market could not possibly sustain this rapid and unrealistic growth. The way I like to explain it is to imagine that we've been in an earthquake for the past 5 years and we're now experiencing the aftershocks. The market is clearly steadying.
As little as four years ago (2003) the equation for determining a "market value" was to take the assessed value on a property and multiply that by 20-30%. Appraisers were supporting that equation. Three years ago it was 10-20%, two years ago it was 5-10% and last year we actually saw home prices remain the same as their assessed value or get listed below their assessed value.
In determining a true value for a home an agent must do a "site visit." Actually view the home, note the features, amenities, upgrades and condition of that home and then determine a value based on these factors as well as the "comps" of homes in that specific area that are "active, under-contract or have sold" (which are truly similar to that particular property.) An agent takes into consideration the "curb appeal", age, square footage, and number of levels, bedroom/bathroom totals, building materials and lot size of the property. We then determine the average "PPSQ" (price per square foot.) Using all these factors along with the comps that are pulled, a "market value" is then determined. Unfortunately an agent must also consider the appraised value when pricing a home accurately. No lender will loan money on a home in excess of its appraised value, which is why accurate comparables of other homes in an area are so crucial. A home must be priced within reason to ensure there will be no appraisal issues. If comparables are difficult to obtain then I strongly suggest an independent appraisal be done on the property BEFORE it is listed (*be sure to talk to your Realtor about your options should you accept an offer on your home and it doesn't appraise for the list price).
A Realtor is placed in a unique position once they've determined a suggested "list price" for a home. A good Realtor deals with facts. Often times, in this market, an agent must reiterate that their suggested "list price" is not necessarily what they feel the home is actually worth but instead what the market has determined the home will actually command as a sales price. These two values can be miles apart. We walk a fine line between "insulting" a seller and being realistic. It is our job to make sellers aware that this is not the same market it was a year and a half ago. Comps don't lie. No agent wants to be the bearer of bad news. Think about it... it is in the agent's best interest to sell your home at a maximum price. The Realtor must, however, quote you a realistic price of what the market will bear or their doing you a terrible injustice. If your home is overpriced then chances are no one will come in to view your home. If no one comes in, then it won't sell. It's that simple. Again, what your home is worth and what it will actually sell for can be miles apart.
In determining a "bottom line" a seller must figure in what they paid for the home, their monthly payments (is there a HELOC or a 2nd trust on the property?), as well as what they've put into the home monetarily in respects to upgrades, additions and amenities.
Once everyone agrees on a list price for the home the agent goes to work. They list it in the MRIS, market it and make the buying public aware of it's existence.
Sellers need to be aware that the home can sit on the market for many months given the inventory that's out there. Historically, high end priced homes will sit longer on the market than less expensive and more affordable ones. The higher a home is priced, the less of a buyer's pool we have to draw from. A home competes with other homes offering similar features, square footage, views and construction-not necessarily those in the same geographical area. In Northern Virginia we're seeing home prices dropping everywhere. So think about it, what's the "enticement" for a buyer to come to your home? Would someone want to purchase a home further south or west if they can get something truly comparable "inside the beltway" for approximately the same price? It's doubtful. Most people will deal with some commuter or logistical inconveniences if they pay LESS for their home but get more home or land for their money. Everyone likes to think they're getting a good deal.
Effective pricing is crucial to your home sale success. Effective pricing entices buyers. Proper marketing insures that the buying public is aware of YOUR home and pricing a home correctly to begin with aids in the success of its marketing.
All the advertising in the world will not create a buyer. The advertising simply takes an existing buyer down a path to your front door. What WILL get the buyers that are out there INTO your home is: effective, realistic and accurate pricing.
The food chain of a home sale:
(A) Effective and Realistic Pricing --- entices the buyer
(B) Aggressive Marketing--- gets them in the front door
(C) Having your home show like an "11" out of "10"--- makes the buyer write an offer.
(D) A good solid offer creates an excellent chance for a ratified contract
(E) A ratified contract makes for a happy seller.
(F) Sold.
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