Are Your Home Sellers Losing Money, or Just Not Gaining As Much as They'd Like?

By
Services for Real Estate Pros with Marte Cliff Copywriting

Today Bankrate ran an article telling how the rich and famous are trying unsuccessfully to sell their multi-million dollar homes. Some of them have been on the market for years with no takers.

 

Of course, there’s not a huge number of citizens who can even consider buying homes in the multi-million dollar range, so their buyer pool isn't large. But it made me think about the profits that some homeowners are still expecting today.

According to the article, Barry Manilow purchased his home for $3 Million in 1999. Then he put it on the market for $10.9 Million in 2009. Now he’s dropped the price to a paltry $7.9 Million and it still isn’t selling.

Is that price realistic?

No, not if you look at the “traditional” (pre boom) appreciation.

We used to believe that on average a home would appreciate 5% per year. If we applied that figure to a $3 Million price tag, that home today “should” be worth $5.4 Million. But of course, he’s still looking at what it was “worth” just before the bubble burst.

Since he once believed he could sell for $10.9 Million, he probably feels like he’ll be losing money if he sells at $7.9 Million.

Another example in the article was the Pierce Bronson home – it was purchased as a foreclosure for $600,000 in 1996 and now on the market for $3.5 Million.

For the sake of argument, I’m going assume he got a really good deal because it was a foreclosure, and the home was worth an even Million.  According to my calculations of 5% per year gain, it would now be worth $2.08 Million. But he wants 3.5.

I know, national numbers don't count in your home town.

Here in our small town, the California bubble created a corresponding North Idaho bubble as people brought their profits and reinvested in the "land of peace and quiet."

Prices skyrocketed - in some cases by 180% within the space of 2 years. Now, prices have come down - but not to their pre-bubble levels, nor to a "normal" level of appreciation. It's still difficult for people who live and work here to purchase a home.

Is 5% per year the right number?

That 5% rate is only a number that used to be thrown out to convince buyers of the value of purchasing a home versus renting. When I checked the chart from decade to decade, I found that in the years from 1980 to 1990 the appreciation was much higher, and then it was lower between 1990 and 2000.

If you’re interested in housing history, I found a wonderful site showing the median price of homes in each state from 1940 through 2000. When you read it you’ll understand why your Grandmother is shocked at today’s prices – even AFTER the bubble burst.  Check the Historical Census of Housing Tables for an interesting read.

 

According to this chart, the median home price in the U.S. in 2000 was $119,600. I didn’t find anything official for 2010, but according to a USA Today article, the national median price in the third quarter of 2010 was $177,900.

 

So – prices are still up. Just not up as much.

Maybe if you check those numbers, the facts will help you convince reluctant homeowners that they really ARE getting a good appreciation rate if their home has only gone up 60% since they purchased it ten years ago.


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Rainer
325,617
Judy Chapman
Referral Network of Illinois LLC - Chicago, IL

Marte - Barry Manilow and Pierce Brosnan (both good friends, BTW, she said with a smile) are no different than homeowners of modest bungalows in my hometown of Chicago. They all perceive a 'loss' from bubble levels, and they all have to come back down to earth.

Apr 20, 2011 12:53 PM #1
Rainmaker
902,534
Joy Daniels
Joy Daniels Real Estate Group, Ltd. - Harrisburg, PA

It depends on when they purchased.  If they purchased in 2005, 2006, 2007, etc. they are losing money - if it was earlier, they probably aren't making as much as they want!

Apr 20, 2011 01:57 PM #2
Rainmaker
368,550
Carla Harbert
www.LorainCountyHomeSales.com - Avon, OH
RE/MAX Omega: Lorain-Medina County Area

Most sellers will say "it is never enough" even in the good times. But I do agree with Joy - it depends on when they purchased. It's all a numbers game - plus depends what area you are in. Not all markets are the same.

Apr 20, 2011 03:03 PM #3
Ambassador
2,289,023
1~Judi Barrett
Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

Marte,

I have heard sellers refer to losing money when they couldn't sell for an inflated price.  When in reality that was not the case..  Sometimes they seem to use that wording as a negotiating point even with an agent trying to come to a list price.. :)

Apr 20, 2011 03:51 PM #4
Rainmaker
1,531,301
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

Judy - That's right. Big dollars or not so big... What they don't realize is if they'd sold during the bubble they'd have had to buy (or rent) at bubble prices as well. They really haven't lost.

Joy - Absolutely. The people who bought at the top of the market are hurting like mad. But the ones who bought before prices spiked are probably seeing a "normal" rate of appreciation. They're just sad because they saw the bubble and want those prices.

Carla - Right - even that chart that gives median prices state by state might not be accurate for your city. I agree - it's never enough.

Judi - Hard to lose something you never had, but they think they did.

Apr 20, 2011 05:36 PM #5
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876,796
Connie Harvey
Pilkerton Realtors - Brentwood, TN
Realtor - Nashville TN Real Estate

Marte, we sold our beach house in 2008. We sold it for 35% less that what we started at. We still made money because we bought in 2001 and it had more than tripled in value. You can't lose what you don't have and we never had the inflated price.

Apr 27, 2011 10:20 AM #6
Rainmaker
1,531,301
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

Connie - Exactly. You still gained. I think that's what agents need to stress when their sellers start that "not going to give it away" song and dance.

Apr 27, 2011 11:44 AM #7
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Rainmaker
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Marte Cliff

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