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Are sellers being realistic yet?

I read a news story from MSNBC indicating the reality now setting in on many sellers in the market. You can read the story at http://www.msnbc.msn.com/id/27648884?GT1=43001

One statement was made by a Florida seller, "We lost close to $100,000 in equity so we were walking away from real money."

First - is it "real money" or "not yet realized" money. For homeowners who purchased a home in 1st quarter 2007, their actual value vs their purchase price is likely MUCH lower in the present market. THEY have lost REAL money.

But if you bought a home in 2003, and gained $150,000 of equity from 2003 through 2006 - and are now back to 2003 levels - their only real loss is potential, or loss of equity. Or, perhaps the real loss is when you compare your home investment to the lost opportunity of putting your money in other venues such as mutual funds.

I am noticing a continued trend, however, of the WIDE GAP of hopeful sellers with the narrow expectations of buyers in today's market. One trend was in a community in south Poinciana, FL. This is actually in the Polk county section of Poinciana.

I noticed the median sales price vs the average sales price. But then, I started to compare, as I always do in my appraisal reports, the difference in sales price vs listing price. Typical observations...3-4% difference.

But then I looked also at the ORIGINAL list price vs the sales price. WOW. This is where sellers have to face some reality and quick - if they want to move their homes!

Poinciana Over pricing

You see the trend? Homes were initially listed 17-23% above the sales price. This area has been hammered hard by foreclosures, short sales, etc. So buyers in this market are really looking for a deal. And when a seller is now competing against bank inventory - the markets are not forgiving. The numbers show that buyers can get pretty decent homes (maybe some carpeting and painting needed) - for in some cases 1/2 of the competing listings!

I found this quote from the article very interesting:

"A recent Coldwell Banker report showed that more than three-quarters of its real estate agents surveyed said most sellers have unrealistic initial listing prices for their homes."

Help me understand this Realtors....why would you list a home if you clearly believe the price if too high? I know you WANT the listing. Are you betting you can wear down the seller and convince some future price reductions? Does this lend itself to sellers who are digging their heels in just thinking that you - the Realtor - are not doing your job?

Maybe this is where some additional help can come in handy. I know most people think of using an appraiser only at the END of the transaction...when the bank REQUIRES one. But why not at the beginning? What is the view of an appraiser in today's market? Are we too mired in "over inflated appraisal" stories? Have Realtors just been exposed to too many low quality appraisers who only seem to know how to fill out forms and "hit the sales price", etc?

What if you could enlist a qualified, professional appraiser to help you convince that seller of their unrealistic expectations? Would that be worth $300-$400? What if you could have a quality appraiser provide you with a pre-listing appraisal, measure the home, get you a floor plan, true measurements, market analysis, and specifically...what the seller can expect in declining market conditions?

I know in my reports, I break down market declines into a daily figure. So your seller could see they may be losing 0.0025% each DAY they wait in the market.

I know you don't want to spend $300-$400 out of YOUR pocket...but how much money are you wasting with trips to meet the seller, renegotiate the listing price, time spent discussing reductions, etc? Perhaps $300 out of the gate may get quickly repaid with less hassle from the seller and also a quicker closing?

Perhaps once that seller learns you went out on the limb to employ a "team approach" and hires a quality, certified real estate appraiser - that one listing could turn into multiple referrals? All for the cost of a QUALITY real estate appraisal.

And I keep harping on QUALITY here, since you don't just want someone who has been licensed for 2 years. You want someone who WANTS to tell you and the seller the TRUTH. Someone who can break down market statistics, decline rates, neighborhood trends - and formulate that into a very simple to understand report that your seller will grasp.

I hope you will consider employing an appraiser in a pre-listing scenario. But be sure you ask them some specific questions.

How long have you been licensed?
What methods do you employ to "break down" the market?
Do you use graphs, charts, or regression analysis tools?
What sources of data do you use (assessor only? MLS and assessor, other online tools?)
Are you a member of any educational groups (Appraisal Institute, NAIFA, FREA?) to demonstrate your commitment to eduction and advancing your skills?
And lastly - can you send me any samples of your work so I can know they kind of appraiser I may be working with?

In today's markets - there are plenty of appraisers all looking for new sources of work. That is good and bad for you. Good because appraisers may be more willing to let you "interview" them. Bad - because you, the REALTOR need to do more research into knowing what makes an "average" appraiser and what makes a "QUALITY" appraiser.

I hope this gets you thinking. And...I hope it helps you discuss the "gap" with your sellers so you make the most of YOUR time and theirs in the market!

Make it a productive day

Richard_ferris

AUTHOR: Richard D Ferris - AmcAppraisalsinc.com
Phone 877-789-5249 or email me: richard@amcappraisalsinc.com

Richard D. Ferris
AMCAppraisalsinc.com
richard@amcappraisalsinc.com
(877) 789-5249
One # Does It All - Voice/Fax

Residential Appraisals in Lake, Orange, Osceola, Polk, and Seminole Counties.

Also servicing Deltona, Deland, and Orange City in Volusia County.

Florida State Certified Residential Appraiser #RD4088

FHA Certified : Associate Member Appraisal Institute

Make it a GREAT day!

Richard_ferris

AUTHOR: Richard D Ferris - AmcAppraisalsinc.com
Phone 877-789-5249 or email me: richard@amcappraisalsinc.com

Richard D. Ferris
AMCAppraisalsinc.com
richard@amcappraisalsinc.com
(877) 789-5249
One # Does It All - Voice/Fax

Residential Appraisals in Lake, Orange, Osceola, Polk, and Seminole Counties.

Also servicing Deltona, Deland, and Orange City in Volusia County.

Florida State Certified Residential Appraiser #RD4088

FHA Certified : Associate Member Appraisal Institute

Posted by Richard D Ferris Florida State Certified (FHA) Appraiser on 11/13/2008 02:33 PM

Comments (30)

Pre-Listing Appraisals in the Sales Strategies / Tactics Channel

market analysis, declining market, prelisting appraisal, appraisal standards, appraisal institute, appraiser

This post has been included in Florida Information Polk County, FL Information Poinciana, FL Information
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30 Comments on Are sellers being realistic yet?

NOV

2008

If sellers are not being realistic in this market they must be in a coma.

I think they are! But the numbers still show 1 thing. SOMEONE is not being realistic! Either it is the seller or the Realtor is being overly opptomistic! But some of the neighborhoods I am working in, show trend after trend of price reductions, longer DOM, etc.

Richard - First, someone once defined equity as "the illusion of wealth." At this point, it may be more appropriate to call it "the delusion of wealth." Second, I read the Zillow 2nd Qtr report recently that indicated well over 50% of people in most areas of the country believe their homes are appreciating. In my area, I don't see much of a decline, but I seldom see significant appreciation for the last couple of years.

Sellers are still very unrealistic even with the cma in front of their face. Even after you take them out and show them the homes that are their competition that are larger, more uprades, nicer lots etc they still believe their house is worth more. Now I require an appraisal if the seller is over priced and won't lower their price.

Erik - "delusion of wealth" is a good term! I am an appraiser and I bought my home in 2005. I put another $30,000 into landscaping, clearing a lake front area, etc - and I would LOVE to think I could sell the home for at least what I paid for...but I know the decline not only wiped out some of my purchase price but most of my improvements as well!

But - I plan to be her 10 years at least - so like they say, "you only get hurt on a roller coaster if you jump off!"

You make a vaild point about realtors taking on overpriced listings, however, some take them to show that they have a lot of listings and grab buyers from the internet or sign traffic. Not saying it is fair to the seller, however, 3/4 of the sellers are in fantasy land with their price targets.

I think they still don't think "our" town has been as affected as other surrounding towns. I for one have walked away from several listing opportunities this year because if the seller thinks their house is worth that much - then I suggest perhaps they should sell it on their own. I've spent thousands only to have it sit and accumulate days on the market - sometimes you just have to move on. I think you need to price it so that agents see it as a "deal" and will want to show it to their buyers - if agents think it's overpriced - chances are they won't show it.

You are right - in this market quite honestly I would not spend $3-$400 to get an appraisal up front. The cash flow is tight for everyone. If I know my market - I should be able to price it correctly from day 1.

Great post, I agree. Realtors must take some of the blame...

Bethesda Homes for Sale, Bethesda REALTOR & Real Estate Agent Kacem can sell your home.

Ian - good for you! My goal isn't to suggest Realtors spend money out of pocket just to give us appraisers more work (although I certainly don't turn down the work!)

And Judy - I agree - that most Realtors I work with KNOW their markets and should be able to set a listing price with a good CMA - even though not licensed appraisers - they typically have the experience to know the market and the values.

Rather, my point was, as Ian noted, to encourage Realtors to engage in team dynamics. Perhaps a seller thinks the Realtor is a "sales person" and only trying to list it low so they can sell quickly and get their commission. So, to counter that - the Realtor may agree to an over priced listing (as the statistics show) and then waste time, energy and "mental hassle factor" in future negotiations, price reductions etc.

I COULD mow my own lawn, but I have better uses of my time. My encouragement for a stubborn seller is to engage a quality appraiser out here - and let us make the case like the referee. If the appraiser is quality and not just a form filler - then all we care about is the truth and not hurting anyone's feelings or egos.

Good comments!! I really enjoy getting a Realtor's perspective in this market turmoil!! You guys and gals are on the front lines for sure!!

I agree that most sellers are still not being realistic and they are basically chasing the market -- for example, they may list a home at $300,000 (maybe $5K too high), then the market drops again a few weeks later and the home now is worth $290K, and the sellers will only drop the price $5K, etc... and they are always priced too high.

As an VERY realistic real estate agent, I will absolutely NOT take a listing that is overpriced. Every now and then I will take one if the seller and I are less than 1% apart on the price.

Great post. I have been encouraging my sellers to obtain an appraisal when we list the house. This helps the seller see reality in writing and is a useful tool to present to buyers that are thinking of making an offer.

I am a Realtor in the foreclosure capital of the world, Las Vegas. The typical seller here is competing with the largest owner of real estate in the Las Vegas Valley, Countrywide Home Loan, and Countrywide doesn't want to own all of those homes. After a couple of years of seeing foreclosure signs hanging on their street, most home owners here are starting to get realistic. Part of this is due to the sellers becoming better educated on the market, and part of it is that agents are more likely to take a stand and not accept listings that are totally unrealistic. There are exceptions though. Yesterday, I was pulling up some listings in a particular size range and subdivision. Three were listed in the $210K to $220K range. One in the same floor plan was listed for $349,900. Hope they enjoy dusting their door knob, since no buyers are going to turn it.

Yeah Stephen - and that makes YOUR job to educate your seller even harder. They look online and see a listing like that - and most sellers always think they should AT LEAST be competing with the highest listing out there rather than the median listing!

One of the tools I use in my appraisal reports, is highlighting the monthly decline and translating that into a daily number. For example, in the market I highlighted in this report - this is the last 5 years in the market with a quarter by quarter breakdown of average sold price/sf for homes within a 1 mile radius from the subject:

Poinciana Averages

So, for 2008- the average monthly decline is -4.61%. That is 0.154% per DAY. So for every DAY they are losing value. For every 30 DAYS is is another 4-5% ! THAT should be some motivation to lower the price and sell the thing!

And of course - folks now have to negotiate short sales as well. The BANKS better start looking at these numbers too!! Because this poor person bought their home in 2006 at $130/sf and now they are at $55 per sf. So the BANK is going to lose more and more the longer they wait as well!

Great article on the time/price relationship.

What sellers need to understand is absorption rates. I use this data when I talk to sellers.

Understand what the competition is and how many properties are selling in the past 6 months or so.

If you have 10 similar active properties and only one sold in the past 6 months, you need to be the best priced property or you are going to be sitting here for 6 months.

If they don't want to hear it, they can go pound sand. :)

I think sellers in my area are very unrealistic when it comes to their home! Of course, there is a problem in the economy but it does not affect them when it comes to pricing their home! Some have even lost their home when it could have been saved bcause of the perceived value they have...

Some sellers are in the FOG... Some do not want to be educated.

Thanks

Rich

Charlotte NC

There are many sellers who are not realistic. Mostly due to the BS sales pitch presented to them by agents looking to increase their commissions. Both during the rise and decline of the market.

I definately agree with Kacem that realtors/agents should take some, or a lot of, the blame. If you look at the rise and fall of the housing market - realistically - the majority of all foreclosed properties that involved a sale transaction, were listed way over priced by a realtor/agent to begin with.

Richard, Poinciana is my market so I agree 100% with this post. Some of the prices I see on listings out here are just ridiculous(high). It's also my experience that it is NOT The sellers that are in denial it's the agents that just don't know how to price a home. I meet with expired listings all the time and when I ask them how they priced their home they say they told their agent what they wanted and the agent said 'OK"!!! No attempt was made to price it right.

I believe the Polk county side of Poinciana could be the worst market in the country. What do you think?

Great points! I wish all sellers would have an appraisal done first--that would be nice. The problem is also that so many sellers are upside down and are also unrealistic! But, educating them is key and also resisting taking overpriced listings as well.

An appraisal up front woud be nice but sellers (most) are not going for it. I don't think that they even believe an appraiser. You would think CMAs would be convincing enough but agents pay with the numbers so much sellers don't trust them. I have seen agent list homes as much as 30% over what THEIR CMA came in at. If we can't behonest with ourselves how can we expect sellers to believe.

Well I have to say in my local market a lot of sellers are not realistic and they are having there homes sit on the market for over 2 years.

Richard: Each area is concidered local... If someone in our area were to clain to lost $100,000 in Equity... Something is badley wrong as out market never bubbled

NOV

2008

I think a part of the problem is that people owe more on their home than what it is worth and are "forced" to try to sell it for more.

-Aaron

http://www.sandiego-appraiser.com

Wow as I read this post and some of the comments I am wondering what we are not saying to each other??? Why aren't we saying it? And I say all of this with repsect for the many "quality" appraisers I know in our area and I am sure Richard as well.

First, I just don't understand the solution being presented to Realtors that all would be ok if we just paid their fee? And, we don't get paid if the house doesn't sell, but you get paid up front. The seller is the one who owns the home, not the Realtor, we are paid for our WORK on the sale. It's interesting logic that people always turn to the Realtor who is the facilitator and stands to loose or gain less than the homeowner in a transaction, but feel we should be responsible for paying for the services related to the home sale.

Second, how often have you the Realtor had your client get an appraisal that was totally unrealistic and then you get another one or two and they are all very different. Appraisal is VERY subjective and not helpful at all, just makes the seller more confused and uncertain about what is really the value.

Third, David Hintz comment above? No one has a comment for that? David, we listed the property for what the market was at the time and the definition of market value is what a buyer is willing to pay AND the loans cannot be obtained IF the appraisal does not come in at value. SO the Realtor should NOT list the properties for market value??? Just not following the logic. Realtors nor appraisers get to determine the market, we just intrepret and adjust based on buyer and seller markets we are in at the time. The home would simply not sell (unless all cash sale) if the appraiser didn't agree with the value.

Fourth, Broker Bryant... I agree, what a mess, but really who does know how to price a home in this market??? Seriously, it's rarely been this much of a dilemna with Zillow giving crazy all over the board values that people think just might be right...and can just as often be low as high, and as Richard said in his comment, the bank short sales are not even pricing to sell...so a seller or Realtor that prices to compete with the short sales which appear to be bottom of the market, might just be way off too. If we had a crystal ball. Yes I do agree that some just don't do their due diligence in pricing, but most are good realtors who do.

Fifth, of course we all need to do our due diligence and comps and use our experience to guide the sellers, however, in my 31+ years I have been wrong a time or two. Most of us would admit that we just can't always get it right all the time. And in this market, it's especially uncertain and unpredictable. SO, guess I'm saying ... hanging the market woes on the REALTOR? Have we not been paying attention to how we got here, starting waaaayyyy back a couple of administrations ago with economic policies? They didn't ask the Realtor then, and haven't now. Last I checked we don't have the power.

Again, just would be nice if we had all that power, but we clearly don't or we wouldn't be in this mess. The majority of us are ethical and hard working, love our profession and helping people and just try to do the best we can for our clients by being involved in and reactive to the real estate markets we are working in. We try to get the most we can for the sellers and the best buy for the buyer. It's just not a predictable market or time.

Sorry, just read this and was thinking we were all asleep or you just struck a cord Richard, Thanks for making us think.

Wow Terrylynn! Thank you for the comments! I guess I DID struck a cord with you, huh? <wink>

I wanted to clear up that my post was not intended to say that all homeowners should get an appraisal out of the gate. I certainly believe that Realtors who have the experience can also gage where the market is going and provide an adequate CMA for a customer to set their listing price.

My intent was to speak to those times when there is a rift between what the seller wants (that higher listing price) and what the agent KNOWS should be the listing price - and that bringing in a 3rd party referee might save you time and money in the long run.

And if you CAN convince a seller to pay for an appraisal - I say go for it! But sometimes the seller is thinking - hey, you want MY listing - you work for ME! And they are not going to PROVE to you what they think their home is worth....they just may take the listing to someone else who WILL play ball.

My point was - in these times - is that it MIGHT be worth bringing in that 3rd party referee. You stated ""Appraisal is VERY subjective and not helpful at all, just makes the seller more confused and uncertain about what is really the value""

That was my point EXACTLY with comments about engaging a quality appraiser. There are too many appraisers out there who don't know how to measure the market, don't know how to quantify a decline in the market, etc. As a Realtor...do you present statistical data to your sellers on the rate of decline in the specific market area (say within the 3 mile radius from their home?)

One of the aspects to my appraisal, is that I do not present the data from a REGION or an MSA, but rather the local immediate area...typically within 1 mile of the home. And I can show the level of decline over a 5 or 10 year period and drill down to the market TODAY and where it is going.

THAT is the kind of appraiser you need to be seeking out. Ultimately, the focus of my thoughts were to raise this very idea of - What to you look for in an appraiser when you need one?

I am glad it got you thinking and I am very glad for your passion!

Charles - you make some good points. I know here in Florida, the major issue is the perception of the consumer on the agents and the appraisers.

Consumers see appraisers as one of the "necessities" to close a loan. If they want to refi their home, they say, "can you get the value this high?" If they are the seller or the buyer - they of course just want the value to come in at the sales price.

The perception is - they think that we all "just play with the numbers" and sadly - our industries have lost credibility as a profession. Part of this was due to too many people jumping into the pool during the BOOM period. This diluted the already over populated market with new folks (appraisers and Realtors/agents) who do not have the experience and skills to do professional valuation.

It is time we all have to raise the standards in our industry again to educate the sellers and the buyers as to what exactly we do...and most importantly.....what THEY should be expecting from a Realtor or Appraiser. If the level of EXPECTATION were to be raised - those who can not compete with that will fall to the bottom.

One last comment back to you Terrylynn - I am hoping I am also making a good case that as real estate and valuation professionals - we SHOULD be able to tell where the market is going.

This may not be true in ALL areas (rural areas, areas with low levels of data, etc) - so maybe I am speaking more to the boom and bust areas around the country.

But if we are worth our salt - we should be bringing more than 3-4 comps and a active listings to our reporting. (Appraisers or CMAs). I know in a CMA you would show both listings, pendings, and sales. BUT - what will set us apart from the rest of our competition - is bring MORE than the basics.

I showed in a prior blog post about charting trends: http://activerain.com/blogsview/775228/Creating-Market-Analysis-Charts

Another one with some links to other learning sources is at: http://activerain.com/blogsview/748919/Training-Video-for-Charting

Not that we should overwhelm them with data - but we CAN show enough data to really paint a rock solid picture for a seller to bring them back to reality.

My goal is to NOT have the Realtor walk awayfrom a listing with the "I won't list unrealistically priced homes" attitude. But rather - SAVE that listing by employing a better approach or - if one does not have the skills yet to go that deep - find someone who does (another agent, appraiser, etc)

I think Realtors and Appraisers are often on opposing sides of an invisible fence. We OUGHT to be in the same valuation industry supporting each other with data, training, and assistance.

Good morning and to all out there in the Central Florida area needing an appraiser I highly reccomend Richard Ferris - sincere, honest and helpful - knows what he is doing - have used him for years(I specialize in waterfront and land/acreage) and like above article and comments - he just tells it like it is!

Richard - I am so glad I stumbled across this blog. It makes so much sense to me. Truly great information.

DEC

Hi Richard,

Thoughtful blog. The strategies that I find helpful are to establish a realistic price based on market analysis of Active Listing Comps, Pending Sales Comps, Sold Comps, & Expired Listing Comps. Then if the Seller is in denial or delusional, I discuss the market trends in the current year, then year over year, the historical home appreciation rate, and forecasts on future declines from credible sources. When I get to the historical appreciation rate I already have a value for their home based on their purchase price, any upgrades or additions added since they purchased their home, and the historical annual appreciation rate amortized over the number of years they have owned their home. It works really well as a sanity check.

Then I go on to discussing a marketing strategy, the effects of overpricing, stale properties that become stigmatized after to many months on the market, and the fact that in a declining market their home will be worth less 12 months from now than it is today. This creates a context in which I collaborate with the Seller(s) on a plan to adjust the price downward every two months depending on the activity or buyer interest their property is generating. Low activity generally means the home is priced too high.

Then we discuss realistic expectations and that Sellers who are successful at selling their properties in this market have the ability to objectively analyzed the current market, make timely adjustments, and reasonable compromises when an offer is made.

It is not fool proof. I can't guarantee a sale. And, there are some sellers whose listings I will not take.

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