When placing a home on the market, the seller must remember early and often that there are going to be three "buyers" who must be satisfied with the final price of the property. The buyer, appraiser and mortgage company underwriter must all agree with the price of the home before it can go to closing (particularly if there is no large down payment involved.) Here's how it happens.
The Buyer
When you go to the grocery store and look at prices of produce, you normally don't walk up to the check out and offer less than what's on the sticker. The eggs are $1 per dozen all day long and most everyone will pay that amount or go without eggs.
In real estate, the list price or asking price is not necessarily what you're going to pay. While real estate agents may have a handle on if a house is overpriced or under priced, they're not buying the house - so the real decision maker is the buyers. Thus, the buyers must be convinced that the value of the house is reflected in the price and/or terms.
The smart seller will make sure the price they are asking for is as close to the realistic price to draw offers. In particular, in a buyers market - don't waste time "waiting for the right buyer" to come along and pay your price. Price trending is price trending both ways -- up and down. Thus the smart seller will recognize the trend and move in front of it.
For sellers over the last few years in the Florida market - they have had the benefit of price trending upward. Negotiation for buyers kind of went up on its head -- "You want $350,000. What, are you crazy? I'll pay $375,000 and not a dollar less." Of course, they got beat out by the guy willing to pay $400,000 and include a vacation for the sellers.
When a market levels or begins trending downward, get in front of the trend. This is even more important than a market heading upward if you don't want your house sitting on the market. Every week you wait you literally lose money - sometimes thousands of dollars each week. Don't wait. When prices trend downward, sellers must forget what their neighbor's sales price two months ago -- it has no bearing the day you receive your contract.
Thus the buyer must believe the house is worth the asking price. Next, you have to convince the appraiser.
The Appraiser
Despite what others may say, this is the most important visitor you're going to have come to your house. Sometimes even the appraiser downplays his/her visit to the property. I've had some say, "Oh, don't worry about cleaning up. I'm going to just be a few minutes. Famous last words.
If you have to "wow" the buyer to write a contract, then you better "mesmerize" the appraiser. This is the person who is going to take a first stab and confirming that the seller and buyer have come up with a realistic price for the property.
With a contract price of $350,900 you want an appraisal of $350,900 or higher. If the appraisal is high, it has no bearing on the contract. If the price comes too far below, and the buyer doesn't have enough money down to cover the difference, then the buyer and seller will have to renegotiate who is going to take the financial hit to make the loan work. Is the seller coming down in price, the buyer up in price or are they going to split the difference or worse yet, the contract will get canceled and the process starts all over again for the seller.
The Underwriter
Finally, you have to satisfy the person in the back office, the underwriter of the mortgage company. Underwriters are determining risk factors for the lending company or group of investors. If they underestimate the risk of default on a loan and the buyer defaults on the mortgage in the future, their investors lose or they must sell the loan at a loss. Because of this, while they are not on the street watching housing prices increase, if their analysis demonstrates that the house may not be worth what the contract is asking, they can halt the loan process and the negotiations must begin all over again.
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