You are in the middle of a listing appointment when the seller explains they want X number of dollars for their property. You’ve done your homework with the neighborhood comparable sales, and the seller’s price is significantly inflated from that data. Should you take the listing at seller’s price? Well maybe!
I know this opinion will fly in the face of what real estate professionals believe and wish to practice when listing properties for sale. I’m one of them! However, in my past there is an experience that particular wisdom didn’t serve me well. It was back in 2005 when I had gone to list a property of an old friend. Real estate in Greater Sacramento was hotter than a firecracker, very much like our current real estate cycle. We had little inventory, and values were quickly escalating. Comparable sales stats were significantly below what my old friend insisted the property be listed at. In the end, I did what any “self-respecting” real estate agent would do, I refused to take the listing, saying old familiar words, “It won’t appraise.”
Here’s the part of the story where I begin to lick my wounds. My friend listed the home with a competitor, at the outrageous high price the seller required. It sold within 2 weeks, and to add salt to my wounds, not only did it sell at full price, but $2,000 above it, It has always haunted me, and I have wondered if other ways existed to handle the situation with sellers who insist on list prices, comparable sales won’t support.
Recently, I had a “déjà vu all over again” experience. I was called to list a duplex belonging to long-term clients of mine. And, again, these sellers wanted significantly more than comparative sales material could justify! There was a singular shining spot in value however. The duplex had great rental income. I was tormented because of the haunting memories from 2005. Again, I tried to reason with my client. Alas, to no avail! However, this time I considered that we are currently low on inventory, and Greater Sacramento is one of the nation’s hot spots, helping to lead the country into housing recovery. By some accounts our values have increased as much as 40% year over year. Our marketplace is flush with investors packing cash, and who often don’t require appraisal. We are truly experiencing a realm where property sales are solely between willing buyers and willing sellers.
I informed the sellers we would likely not appraise at their asking price, but I also explained I had been wrong at least once before. We could in this unusual market cycle try the price, and pray for a cash buyer. Because of the exuberant pricing, In the back of my head I was also grateful for the thought of not being inundated with dozens of offers within 24 hours, which is so often happening currently.
In about 48 hours we had our first offer, it was a $1,000 above list price. It was not cash. It was 25% down, and would require an appraisal. I advised sellers we’d likely need to adjust price if the appraisal came in low, should they agree to continue selling to this buyer. At the moment, it was the only offer received. But strangely, I had a gut feeling about these buyers. They had written a very clean straightforward offer without any fluff, or obvious shenanigans. And, my sellers had the same feelings. We accepted the offer and kept our fingers crossed.
No sooner had we signed the first offer, when a second offer with all cash came in. It was $15,000 below list price, but still approximately $20,000 above what comparable sales data was showing as value. We accepted and put the second offer in back-up position.
Last Friday we closed escrow with the first buyer. Yep, Folks, the property appraised 100% of sales price, plus $900.00! It provided some solace for what had happened in 2005, when I absolutely refused to take an overpriced listing, and was proved to be wrong!
What have I learned from this experience, and my 31 years in real estate? I have learned all real estate is cyclic! There are windows of opportunity for sellers to sometimes get a little crazy with prices and prevail. It doesn’t happen often, but it can and does happen! Opportunity windows like it are usually brief and are few and far between. They will often require a low inventory condition in the marketplace. They will usually require the market to be flush with cash buyers, where a willing buyer and willing seller can negotiate price, without the brakes of an appraiser.
There may be a twinge of concern that buyer feeding frenzy hysteria can add to a potential real estate bubble. Yet, with the absolute diabolical slashing of home values caused by short-sales and bank foreclosures these past few years, I believe any perceived threats of creating a potential bubble, are a step forward in recovery of lost home values instead!
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