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Selling Above What You Paid For It | Aversion for Selling at A Loss | Decision Time For Sellers

I just finished reading several well written real estate articles that explored a reality check for home sellers. It was quite informative, and compared other periods of peaks in the real estate market in the late 1980's and draws some comparisons to our current situations. It seems as though a mathematician could easily dispense solutions for homeowners. The problem is the reluctance of the homeowner to embrace the economist approach. We also were talking to some friends and relatives that live in several markets across the USA...unbeknownst to us, they have had homes and real estate properties on the market for sometime without showings or offers. After several steep price reductions there is still no traffic or offers. When questioned why they did not cut the price further (even though they had purchased the properties at the right price and they would still make a profit)...they refused. It seems as though they had some invisible line in the sand drawn that they would not pass. So let's discuss some of the issues that comprise A Reality Check for Seller's

Over the years we've seen many clients tell us they have their limits in pricing also. If an offer came in below that price, they would refuse it. They share they would rather keep the home, rent it, or burn it than give it away! Those are strong words and sentiments for sure. I think for many veterans in real estate that a sale is more objective than subjective. For myself it is more like making a decision to get from A to B! Once the decision is made, then a plan has to be formed to figure out the best plan to get there. I look at minimizing a loss, and making it up on the other end. How can I make up the loss?

The biggest mistake most home sellers will make is to believe they can save more money by selling it themselves as a sale by owner, or getting an agent to list the home for a greatly reduced commission. What they just did was make a fatal mistake. They just placed their listing in the hands of someone that will do nothing to sell their home. A real estate kiss of death! A sale is not made by placing a home as an MLS listing..that is passive and not proactive. A sale begins with hiring someone that has the ability and experience to guide them through the sale of their home, and accomplish the task! It is not about listing, it is about selling! Otherwise they will sit on the market forever without selling. And sit, and sit some more. That is what happens when markets change. In the late 1980's in Boston prices rose quickly and fell. From 1989 to 1992 prices in Boston condos fell over 40 %... yet some homes sold! Why? Could it be that some home-sellers faced the reality while others just denied it? Those that bit the bullet of reality sold, while those in denial watched as their home prices kept falling over time. When we read statistics from some markets they will report that sales from last month were only off 2%, but in the bigger picture is how much are sales units off from the same time period a few years before. If we compare peaks of markets and units sold what we may find is that from June of 2004 to June of 2007 units sold may have dropped by almost 50%. Some agents make the fatal mistake of looking at the rising medium price as opposed to units sold. In one market where I am licensed, a comparison of markets shows an erosion from 2000 units a month sold in June of 04' to about 1000 units a month sold in June of 07'. If we are agents of the buyers and sellers we have to be giving our clients the right information. Telling the truth is never easy, but you will make more sales if your sellers are able to embrace the same vision you are sharing! The phrase "Are you seeing what I'm seeing?" has to be a fluid dialogue that you are having with your seller clients. If not, you are just wasting their time, or they are wasting yours! They have an option to sell now if they want, or no regrets later.

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Posted by Jim Crawford ~ Atlanta Real Estate-ABR E-PRO on 09/22/2007 10:58 PM

Comments (34)

real estate prices, home sellers, home selling, falling real estate prices, home values, home sales, declining prices, price decline

Originally posted at: Atlanta Real Estate | Atlanta Housing News for Real Estate: Selling Above What You Paid For It | Aversion for Selling at A Loss | Decision Time For Sellers

This post has been included in Georgia Information Fulton County, GA Information

34 Comments on Selling Above What You Paid For It | Aversion for Selling at A Loss | Decision Time For Sellers

SEP

2007

Jim,

My dad had a lot of sayings that I never quite understood until I grew up; and the older I get the more relevant they seem to be. One of his favorites was "Pigs get fed, hogs get slaughtered". I've found myself repeating this one a lot lately.

Jim - The market here in Texas hasn't suffered like other parts of the country, but consumers are watching the news and they're scared. Our houses are selling, but at a slightly slower pace than other seasons and at a lower price.

I agree with you that trying to sell on your own without an agent is the kiss of death! The FSBO market has no where to advertize and market their properties. It would cost them a fortune to have access to the avenues agents have to market. We're going to have to be more proactive in marketing ourselves to the public to show the value in using a Realtor to save money.

Excellent post!

SEP

2007

Susan Peters Good saying. I find myself thinking situations through a lot more lately. There is a dichotomy when a person calls you up for your expertise and when you share it...they don't want to hear it. It is like saying here are your choices... A, B or C! And they choose K! Now my choice is should I enable this, or just move on? I am more ojective and opt for the move on scenario. Leave on good terms and they will call you back a few agents later. This happened a lot in the early 90's. Sellers may realize down the road that you were the ones that shared the truth and are now willing to work with you.

Linda Scanlan I agree, and sales are going to be hard work. We can forget about just putting a sign in the ground and tendering multiple offers. Those days for the most part are now history. We must also remember that not ever sale is a loss. I am still seeing good sales in Atlanta, but ti is the homes that are priced correctly. There is no room for guesswork on pricing and marketing.

Jim - There is no doubt that lots of sellers need a sanity check. They fail to want to believe what is in black in white in front of them, that somehow their home is "different". In my area outside of Boston if you bought a home in the last 3 years and have to put it on the market right now, there is about a 95% chance you will be selling below what you paid. For a large percentage of sellers this is a reality they just don't want to come to grips with. Of course there are still agents that take the overpriced listing eventhough the market tells them it will never sell for that figure.

Bill Gassett I know there is a resistance to sell at a loss. I remember buying Lucent stock when it fell to $53 a share from $89 a share. Someone said "Buy it now, you'll never see it at this price again!" They were right it kept plunging. I sold it at $2.50 a share. I lost over 17K. So what is different about real estate. There is a belief that real estate only rises. That is erroneous thinking. History shows homes an real estate does correct. The choice sellers have to make is do they want to hold onto the real estate as it is correcting, or cut their losses at a minimum and move on? Personally I like Novocaine before a dentist works on my teeth.

I think the line in the sand comment is quite prescient. And it was explained to me by a seller on Friday night in much the same way. She said that "she wanted hers" She knew that the seller of the home they had bought got his and she wanted the same. It wasn't so much a conversation about her actual need because they priced very reasonably and did a yeoman's job of getting the home presented for market. But it explained what they are all feeling right now. They want theirs. Even when theirs is less but still a profit it's not what the others got. Now I know to remember they have this line in the sand mentally so I can help with that objection before it comes up.

I always think I'm fairly reasonable so this line is the sand seems to get in the way of success and seems so counter productive!

I had a listing appointment yesterday where I spoke with sellers on market for 111 days. Very nice house, not badly priced now that it's been reduced. But decorated a la his mother in the early 60's. The Realtor said don't bother with the wallpaper, no problem with the heavy outdated furniture, no problem with the kitchen from the 60's let's price this over $800K. And he doesn't believe in open houses, who needs the Internet for marketing because he's been doing this for 35 years and knows just what to do, for the discounted price to the seller of much less than what we consider full commission.

Very likely I'll be dealing with those 111 days on market, getting the wallpaper removed, revamping the home's interior to suit modern tastes and relying heavily on the Internet and not just my sign in the yard. Can I do all that for a discounted rate? No. But I actually think I can get this house sold because it's a great product. But they likely lost $50K by taking the first route. They understand but I don't think they fully get that they started the problem by insisting on getting the work done for less.

Jim, prices are always subjective, whether in a rising market or a falling market. I think we (Realtors) need to have a "stabilizing" effect rather than a de-stabilizing effect. Encouraging ever lower prices only de-stabilizes the market. The best thing we could do in this type of market is refuse listings if they don't HAVE to sell. Less inventory would result in better pricing for those houses on the market.

We "know" that over time house prices increase. Downturns are usually short-lived.

Sometimes it might make more sense to re-fi the house to take some cash out (if they are moving to a new house) and then lease the house until the market comes back.

Bill Roberts

Hi Jim,

It appears that many Sellers won't budge on their prices because they need more to buy something else not because they won't make money on their current home. But that's a dilemma that many are facing now - "nowhere to go"! Good advice - thanks for sharing it.

Josette Skilling You shared some great stuff here! Everyone wants theirs. Some will get it, many won't. I am not pessimistic but rather realistic. When I could get incredible prices we exceeded the market. I can acknowledge that those days are gone. For how long? No one really knows or wants to share. Patience, honesty and perseverance will sell homes. It takes a team, a willing and eager seller, and an experienced agent willing to go some extra miles to get it done!

Bill Roberts In Atlanta we have over 116,000 listings, less than 5000 selling a month. The inventory is much more than doubled. Compound that with a 300% increase in agents in 3 years. We are over 45000 agents up from 12000 less than 3 years ago. So here in Atlanta the market is extremely dysfunctional, It s very easy for an agent trying to sell homes that the sellers are unreasonable. You are right, it is time for them not to list their homes, and ourselves, we will walk away from taking a listing, and we will fire a listing. It has nothing to do with lowering price, it has everything to do with knowing the price trends. Marketing in real estate is not good when it is fear based, but being hired by an individual that needs to sell requires skill, The reason inventory isn't dropping this time of year? Well usually once school is in Atlanta inventory drops. Not so this year! For the past few years, Atlanta lead the nation with Interest only loans. In fact, 52% of every loan written in Georgia for the past few years were sub-prime. No money down, and falling equity. This down turn will not be short lived. I may want it to be, but it will not be. The Downturn in 1988 flattened out markets for years. These numbers in this market are far worse. I survived and did very well in the last downturn in the early 90's. I expect to do very well in this coming market...because we focus on service, and results. If a person just want to be agreed with, I am sorry I do not have the time to just hold hands. They will need to find another real estate agent who doesn't care if they sell or not!

Lisa and Robert Hammerstein I love it! That is a very common excuse! I hear it over and over again! "I am moving to Chicago and hte homes are so much more expensive than Atlanta!" Another line is that in real estate we get called in when a person has already purchased another new home, and needs the extra money for all the upgrades on the new home! That is like the line my farmer uncle used to say "What does that have to do with the price of turnips?" A home will sell at what buyers are willing to pay, and in this market price must meet their expectations! There are too many other homes in competition.

Jim, what could be done to reduce the number of licensees in your area? We need higher standards. What better time than now to impose them? I know you have friends on the national level. Could some help be forthcoming? That kind of inventory is a problem for everybody. Too many agents yields too much ________ (fill in the blank with everything that's bad).

Bill Roberts

Bill Roberts I know that the market is going to soften in the short term. I hope that the number of agents will dwindle, but the cost of staying in real estate is so low these days agents will just be hanging their licenses with brokers that charge $29 a month and a transaction fee. We live in some very different times. In 2001 NAR had about 735000 members we have approached over 1.5 million in 2007. So nationally we had a doubling in our membership. Some areas like Atlanta were impacted more by the tel-com and IT bubble in 2001. Everyone then came into real estate when they were jettisoned from their 9-5 jobs. I am a firm believer that a lot of the fraud and foreclosures were a direct result of having someone with absolutely no experience offering their services to a client that did not ask the right questions.

I think the folks at NAR are just hoping for attrition this year. They do not want to rush anyone that can pay dues out the door! I do see some affected by the inability to renew board dues, and pay MLS fees. That will cause some to leave. I believe the market will have other forces that will come into play that will have a greater impact. Less deals is one of them. In some areas like Virginia, I understand the Grantor Tax which was a seller's fee 1/10th of 1 % ( $500 dollars for a 500K Home) will be rising in January of 08. The new fee will be $5/$1000 ( a 500K home the seller will now pay $2500 tax) If I am wrong anyone please correct me! ***

The increased fees to sell a home will further slow sales. It is the nature of TAX to stifle business.

Local governments got used to the boom in revenue from our boom, and spent the money in anticipation of collected revenue. So a lot of new projects were started. Schools, public service projects, local municipal improvements, new fire houses etc. Now that the explosive growth subsiding, how will they pay for this? Increased taxes and fees come to mind. They are all counter productive to our industry.

That line in the sand WILL eventually move. But more often than not, it's only when it's too late and the market demand an even steeper price reduction than they're willing to give. However, I've often found that the same sellers who tell me they absolutely will not accept a price lower that *insert dollar amount here*, are the same ones who DO accept the lower offers. And the ones who said they were flexible, end up being the most stubborn. Go figure!

People don't want to lose their money. But in a down market, a loss on their current home may translate to a big discount on their move up home...people don't necessarily grasp this concept...

Jim, I appreciate your answer, but you might consider making it a post. It is almost that already. I would still like to see higher standards for real estate licensees.

Bill Roberts

Jim,

We have all seen that line in the sand. It took me a year to figure out that taking an overpriced listing is just a waste of everyone's time. If a listing prospect refuses to see the reality of the market then the home is unlikely to sell. It does no good to draw a line in the sand above the high tide mark and then wait for the tide to come in!

Lisa Hill I agree the line in the sand will eventually move, but on whose watch? In the early 90's I found we had a lot of success with expired listings after they were on the market at least 3 times. Seller's at that point had thrown the towel in and were willing to listen to an expert. They finally conceded they did not have the answer, and were willing to become teachable.

Bill Roberts I will consider that! I think I have made a lot of attempts at trying to make agents accountable. Part timers, wannabees are not high on my list.

Rita Taylor Thanks for sharing that! One of the relatives we spoke to this past weekend told us of an agent that had their home listed for 8 months came over and handed them their keys. The top producing agent told them she had done everything possible to sell their home, and could not. Price, improvements, ads, open houses etc...are not working. She asked one more time if they would lower the price again, and they said no! So she fired them. They listed with another agent that told them what they wanted to hear, and are on the market now for another year, with no shows. The first agent had the common sense to move on! The second one was an idiot for taking the listing and demanding nothing of the sellers. Even the sellers acknowledge that!

I think we are hijacking this post! Higher standards for licensees.... Hmmm... like maybe an apprenticeship program or more than 15 hours per year to maintain a license? Or higher barriers to entry like more than 10 days to get a license? I still remember sitting in my class about day 5 saying "what exactly is protecting the unsuspecting public from me?" After this very brief period of time where I learned many things I actually consider important, though I learned absolutely nothing about my job, I realized we have a very serious problem in the industry that the states should be much more proactive about. Our economy is so real estate based that the work we are currently doing is simply too vital to leave it to someone who took a 10 day course and then hung a license with someone for the lowest fee possible and zero barriers to entry.

And the Atlanta market is a very broad example of that to its long term detriment. I've read the national press on the widespread devaluing of property and even if half of what they say is true, no, it won't recover for a very long time. There are neighborhoods here where I can track problems due to Realtors who had little or no knowledge of what they were doing and the result is 1/3 of the properties owned by the banks and tanking values. All the parties to the transaction were at fault but I see every day how much influence I have and place a very high value on being as just and fair as I can be. By everyone ignoring that in the past we now have so many areas where the Realtors are complaining about the bad market, the very one they helped create!

I'm also realistic to the fact that it's just not likely to change.

Jim - Those who draw a line in the sand and price too high to begin with usually end up chasing the market down. This is where they lose the largest percentage of money.

It is difficult today with the negative press and the inuendos by the media. I read a local comment the other day about agents accepting the blame for the market we are in. In fact, Indianapolis is not a bad market, except the news would have you think it is. The people who buy now will be happy they did in a few years. That goes for sellers too. If they sell now, they will more than make up the loss with their purchase.

Josette Skilling I was in Silver Spring Maryland this time last week. My son had an apartment up in the area, He had graduated in May, and with a college degree in chemistry he could not obtain a job. In spite of hearing the DC area was doing great job wise, he would go on job fairs and find himself competing with over 3500 others for a limited number of jobs. I think there is a lot of things occurring right now, and a lot of what we read in the press is either hype about shoring up the markets, I am licensed in VA, and kept watching the stats up there. They do not look much better than here, the only difference it that your prices are much higher.

I do think it takes experience to cut through a lot of the issues and go right to the core of the issues. I do not see the states changing anything about license requirement other than adding a few hours or beefing up the continuing education credits. I think brokers have a bigger responsibility than most to correct this. In the past few years many of he brokers have prostituted the profession not demanding anything of the agents, and shirking responsibility by not demanding accountability!

Paula Henry I agree fully! "Those who draw a line in the sand and price too high to begin with usually end up chasing the market down. This is where they lose the largest percentage of money.' But is the press really negative? It makes me uncomfortable to read a lot of it, but I don't think they are really getting any of it at all! I think there are some good buys, and a lot of overpriced properties. If priced correctly they will all sell. Very few in this market will lose anything! We were never a strong appreciating market. The agents that are pricing as if it is, well their listings are just sitting! Their loss for not looking at the facts!

SEP

2007

Great Post Jim! I could not agree with you more and I think that many, both agents and sellers are stuck in the "old days" where anything would sell! Now it's harder and there's work involved!

Ana Connell I think we have to get the sellers to think, listen and reason with an open mind. Then we have a chance!

SEP

2007

Jim - great post! And for the record, you are correct about the Northern Virginia Transportation Bill (HB 3202) and the increase in the Grantor's Tax from $.10 per $100 to $.50 per $100. In a time when sellers are struggling in this slowing market, this bill is leaving many of the localities affected fuming mad!

In regard to your post, I've found that it's not enough to show comps. Compelling data with regard to absorption rates has proven to be a very valuable tool during my listing presentations. The proof is in the pudding. If only 100 homes have sold in a particular price range and area within the last 6 months and there are 200 homes currently on the market, the picture is BLEAK...a 12 month absorption rate.

After giving this information if I'm met with, "Well, I put a lot of money into this house over the last 3 years and I need $XXX,XXX to move to my next house. I will list it for $(INSERT INSANE AMOUNT HERE) and I want it in 3 months!" I am only too happy to say, "Well, then, I don't think I will be of any help."

Irene Morales Ward I think that is a very reasonable and very professional approach! There is no sense to waste their time or yours. As far as a listing periods, I will not take any listing less than 6 months in this market. I will not do any 90 day listings.

That is insane! That is a 500% increase in tax! That is the last thing sellers or real estate needs! That is punitive and will work against a market recovery! I am surprised that no one in Virginia is fighting that increase. A $500 Grantor Tax on a $500,000 home will now be $2500. Governments got used to the income from the boom times, now they cannot ween themselves off their crack addiction. In Prince William County it is assessments that are greater than the properties worth. That translates into higher than market taxes to fund anticipated growth based on high flying markets that have stalled and are dropping. Unfortunately, that still does not change things!

Jim - I'm with you on listing periods. If the seller isn't motivated enough to give me appropriate TIME to market their home effectively, then I know they aren't motivated.

As for the tax increase, yes, it's definitely ludicrous. There is a great site (which I think I will blog about) with an organized online petition to this bill. There are plenty of online petitions but I don't know that status as of today. I think I'll spend today researching it because you're absolutely right, this is a catastrophic mistake in a downturning market and it's going to only hurt the overall economy here.

Irene Morales Ward Thanks for sharing Irene. That is not a tax increase, that is a death knoll! That is beyond all measure or restraint. Realtor Boards need to be taking a very active part in getting this repealled. It hurts already burdened sellers.

DEC

2007

While I agree in principle with your statements about pricing and condition, I must disagree with your comments about "They just placed their listing in the hands of someone that will do nothing to sell their home. A real estate kiss of death!" when you refer to Brokers that take reduced fee listings.

That is a self-serving unsubstantiated statement with no statistical facts to back up such a broad-sweeping indictment of your competitors. The simple truth is that an overpriced listing will NEVER sell regardless of the exposure by any Company or individual agent. With over 100,000 homes for sale in the Atlanta market, it becomes painfully obvious that a reality check is in order for sellers and one of those realities is that, regardless of the market, over 90 % of the sales are accomplished by an Agent with a buyer "in tow"! Proper presentation on the MLS systems here in Atlanta combined with a reasonable price and a good photo tour of a home in good condition will increase the odds of getting a home sold regardless of the listing fee paid to ANY Broker or Agent! I have heard this argument presented as a "statement of fact" since I was first licenced in 1971 without any merit whatsoever then or now.

I stick to my statements! It is the difference between selling in a hot and trying to sell in a cold market! One..passive marketing will work, the other a slower market you need more proactive marketing approach! As far as selling above list price? It happened a lot in the last few years!

"A sale begins with hiring someone that has the ability and experience to guide them through the sale of their home, and accomplish the task! It is not about listing, it is about selling! Otherwise they will sit on the market forever without selling."

Selling at a reasonable price, mean an agent does not have the same3 abilities a great agent could have by selling a home at a better price... After all, it isn't our money, it is the seller's.

DEC

2007

Jim: Another great post. In general there is a serious disconnect between what sellers hope and wish to net and what the market will support. Sellers are happy to take advantage of a strong bull market but when it plateaus and begins to soften, they still hold out hope of making a life changing profit on the property.

There was a time I let sellers exert significant influence over price. I learned very quickly that was a losing strategy. Now I tell sellers, in a subtle way, to get on board or they lose the opportunity to have me represent them. I'm the expert in the room; I'm one with the credentials, the training, the experience. I'm paid very well for what I do, but I do not work with people who refuse to accept my advice.

I also want to comment on Bill's "proper presentation on the MLS systems..."comment. Part of what we get paid for is positioning a clients property in the market; the MLS is but one component. That takes capital to do effectively; capital most discount brokers don't have when they charge a $250 fee. The other component is being there to move the property from contract to closing, which the discount brokers in our area leave the sellers to figure out. Definitely the real estate kiss of death.

Fairbanks, Alaska Realtors Jesse & Kathy Clifton We are the experts! That is the way to approach it! i also agree with you that an MLS entry alone will not make the deal! That is just plain naive! There is also a difference between selling a home, and giving it away! To properly qualify those statements, I would love to see...(and I doubt they exist) LP/SP ratio, Days on Market, Sellers Net etc...to properly evaluate.

Jim,

Perhaps we could use some of your listings and sales as an example of how a superior listed property presentation and Great Agent approach can increase the return a seller may receive. I would be very interested in some concrete facts from an expert such as yourself.

1 agents stats out of 45000 agents in Atlanta would not be representative of any trend.

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