This is another one of those phrases that Realtors hear all the time. It is, quite frankly, a very natural thing to feel and say. You paid good, hard-earned money for your home. You’ve put additional money (and sweat equity) into the house. You’ve lived it in for a period of time and your neighbor who bought at about the same time as you got 120% more than he paid when he sold about 2 years ago.
So why should you give it away? You shouldn’t!
What you have to do is to clearly define what “giving it away” means to you. It’s very subjective. Ask yourself the following questions:
- Why do you want to sell in the first place?
- What will you do if you don’t sell?
There are a dozen reasons why people want to sell their homes. Answer it honestly. Perhaps selling isn’t really that important to you. If it is, then move on to the second question – what will you do if you don’t sell? There are only 3 possible answers.
- You’ll stay in your home
- You’ll rent your home to someone
- You’ll move and leave the house vacant
The most common answer is that you’ll stay in your home. If that is your answer then ask the following question
How long will you stay before your original reason for moving becomes urgent?
If you think you will stay in your house for “a while – until the market turns and houses appreciate again” you should sit down and do some math.
Here’s an example which is, admittedly based on theory – no one really knows what is going to happen in the market. We’re going to start with the hypothetical assumption that the market will continue to depreciate for another 9 months, level off for 6 months and then begin to appreciate again.
Soooo…. using my favorite $100 house, let’s look at a couple of scenarios. First, where you overprice the home and then at what happens if you try to wait it out.
SCENARIO #1. You paid $90 for your home four years ago. Your neighbor who has a similar house also paid $90 four years ago. He sold his home two years ago for $110.
Your Realtor tells you that a good selling price for your house is between $98 and $102. He suggests listing it for $100. You know that you’ll probably have to negotiate a little and sell for $97 or so. You will then have to pay a real estate fee of about $6 so you’ll end up netting $92 which is only $2 more than you paid.
You feel that that is just “not enough” and constitutes “giving your house away” and you are not going to do that.
You decide on listing it for $108, and will negotiate down to $105 if you have to. After taking out a fee of $6 you will net about $99 which is, in your opinion, “good enough” after all, it’s WAYYYY LESS than your neighbor got. You are being very flexible without giving it away.
What happens next is that your house doesn’t sell quickly. The educated buyers who have been looking at houses for a few months, take a look at your house and they know, while it might be a great house, there are others out there that are better values.
90 days go by.
You then, reluctantly tell your Realtor that you’ll lower the price to $102 – which is the top range of what he originally suggested. Sounds like a plan right? There's one more wrinkle.
Based on a continued depreciation your house is no longer valued at $100. It is now valued at about $98. A new group of educated buyers (the other ones have already bought homes), visit your house and reject it. There are some other similar houses that are selling for $96 and $97.
Your house sits for another 90 days – and the cycle continues. Eventually the market does bottom out. Your house is now worth about $92 or $93. You decide that you simply can’t sell at that price and you pull your house off the market.
SCENARIO #2. You hear your Realtor’s original price suggestion of $100 and decide to wait it out. You do nothing for 9 months. The market then bottoms out and your house is now valued at about $92 or $93. You feel that things are on track and you’ll just wait for things to rise again.
You can see in both scenarios you are sitting there 6 -9 months later with a home that is worth about 7 or 8% less than you could have sold it for when you started the process.
Again I want to reiterate that this is all hypothetical. No one knows what is going to happen. In our little story, the market begins to slowly appreciate and 12 more months go by and your house appreciated in value by about 5%. This now makes your home worth about $97. You are 21 months from when you started. If you then factor in the mortgage payments that you've been continuing to make, your net proceeds from this plan will be far, far less than if you had sold it for $97 at the outset.
So – now go back to those two questions.
Why do you want to move and what will you do if you don’t sell?
This, of course, leads again to the third question – how long can you actually wait before you move.
No one really knows when the market will turn and how quickly it will appreciate when it does. In the best of scenarios, however, you need to understand that in all probability, your house is worth more today than it will be tomorrow or in 6 months to a year- and that it could be 1, 2, 3 or more years until it is worth more than it is today.
BOTTOM LINE :
1. Overpricing your home will not help you net more from the sale.
2. Overpricing will probably delay the sale of your home and you will end up selling for less.
3. Holding off until the market turns will not help you net more unless you can wait a very long time.
4. What you WANT for your house is irrelevant to the current value.
5. What you NEED for your house is irrelevant to the current value.
6. What you PAID for your house is irrelevant to the current value.
7. What you OWE on your house is irrelevant to the current value.
8. What your next house will cost is irrelevant to the current value.
9. What your neighbor sold for a year or two ago is irrelevant the current value.
Ultimately, you have no voice in the current value - you only have a voice setting the asking price.
BOTTOM BOTTOM LINE:
The question is not how much you want to net for your house. The question is whether or not you want to move.
If you do, then you must price the house based on what people are willing to pay.
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