It may seem obvious to most real estate agents that Buyers and Sellers have two very different values for the same home and for very different reasons. The trick is to get the two (Buyer and Seller) on the same page. This situation is not so obvious to the Buyers and the Sellers of property...especially during the current foreclosure crisis.
As home prices continue to fall, Sellers are losing more on their investments and finding it difficult to believe that their (once) beautiful home could be worth so much less than when they bought a few short years ago. Nothing could be worse when you are losing your home and trying to short sell to avoid foreclosure. To make matters more difficult, Buyers have high expectations and are offering much less than list price.
With all the confusion and new factors involved in home sales, it's no wonder that real estate sales are becoming more complex.
Buyers
The pendulum has shifted and it is truly a Buyer's market. Of course, the Buyer's Agent wants to get the best price for the Buyer; however, there are many more factors at play now than ever before.
First, home values are still on a downward trend. The "bottom" is still not defined. That will only happen when the prices come up. Secondly, in the case of short sales, the lender has to approve the sale price or there is no deal. Many a sale has been lost because the Buyers low-balled the offer, the Seller accepted it, and the lender declined. On the other hand, the Buyer does not want to pay for a home that is still losing value.
Another very important factor is the value to the Buyer. I have seen many Buyers come in and start deducting the costs they will incur to remodel a home. It is normal to allow for major repairs when considering the amount of an offer, but remodel is the choice of the Buyer and has no bearing on the home's current value. This is the bane of the Buyer's Agent: trying to explain to a Buyer that the remodel work will likely increase the home's value, but can't be detracted reasonably from the purchase price.
So, value on the Buyer's part depends on (among other things) the following:
- how much they like the house
- what they think they'll have to do to make the house perfect for them
- where the house is located
- major repairs
- how little they think they can get away with paying - notice I said, "they think". This will tell their Agent about how long it will take to find them a home or if the whole exercise is futile.
Sellers
Sellers are just as adamant about the value of their home - whether they lived in it or bought it for investment or retirement.
Generally, homes are priced based on the current condition of the home and the neighboring comparables. The Seller's Agent will "comp out" the list price based on fair market value and what the Seller will accept. In the case of the short sale, the Seller's Agent has to be able to sell the price to the lender once an offer is received. In this case, they must also factor in what they think the Broker's Price Opinion will bear out. Ultimately, after all the research is done, the list price is the Seller's choice.
Sellers put their homes on the market for various reasons. However, now, with the increased threat of foreclosure, many are listing their homes because they can no longer make the payments and it's the only way to avoid foreclosure. Every sale is emotional to some degree. The foreclosure situation can create a more volatile emotional backdrop. Sellers are shocked at the lack of value in their home, angry with the lender, and emotionally spent from the stress. The Seller's Agent has to spend time comforting and keeping the Seller positive during the course of selling their home. Here comes a potential Buyer, and the Seller sees someone who is ready to pounce on his misfortune.
Of course, not all short sales are quite so raw, but this situation is common. Nerves are frayed and the thought of someone else taking advantage of their situation is, frankly, hurtful. Ultimately, the Seller bases value on their home with the following considerations:
- how much they like their home
- the improvements they have made to the home
- their neighborhood
- major repairs they either can't or don't want to handle themselves
- how much they think they should get for the home (there's that "they think" again).
The Bottom Line
Of course, neither of the lists above is complete, but I believe they are major factors in determining the value of a home. No matter what side you are on, it is important to remember the other side's point of view. This can help the two sides come to a meeting of the minds more easily. In the case of short sales, it is truly important for Buyers to be more sensitive to the Seller's situation. It makes the whole transaction proceed more smoothly.
Buyer Be Educated, Seller Be Prepared
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