How about this scenario? So far, you have made sound financial decisions and have not gotten yourself over-extended. You didn't refinance your home umpteen times and even in this dire real estate market, you still have plenty of equity in your home. Now, you want to sell and realize that you will not be selling at the top. Your plan: hire a realtor to sell at fair market value.
And therein lies the problem... What exactly is fair market value? It used to be simple. Look back six months, see what the neighbors' homes sold for, find a happy medium and go for it. Not any more. Not by a long shot.
First, for appraisal purposes, the look back period has been reduced to 60-90 days. Simplified, this means that home prices are declining at such a feverish pitch that banks are no longer willing to affix fair value to a home sold 6 months prior.
Second, of the homes sold in that 60-90 day look back, over 70% will have been short sales or foreclosures; not so good if you are looking to sell for at least a reasonable sum. The giveaways on your block are slowly but surely affecting your bottom line. In the past, those fire sales were usually thrown out for comparison purposes. However, as these distressed sales continue to account for the majority of all sales, their impact on valuation is steadily gaining.
Third, the trend is not your friend. More and more homeowners are unfortunately finding it necessary to sell short. The banks are going along with this for two reasons: [1] foreclosure sales are yielding greater losses than short-sale scenarios; [2] lenders do not want the insurmountable problems and expenses associated with managing tangible assets. Simply put, sale prices will continue to weaken as seemingly lopsided transactions creep into the mainstream.
What can you do? Research before pricing your home! Pricing is a lot more difficult than it used to be. You must know the number of distressed properties in your immediate neighborhood. If it is less than a handful, your argument to sell for a sum higher than those currently in distress is valid. If, however, distressed sales prove to be the overwhelming majority in your neighborhood, you will be forced to sell at or around those depressed figures. What's worse is that if you choose to ignore this research you will put yourself in further trouble going forward. I know there are a more than a handful of you that think you know more than I. Maybe you do. But think of it this way. If every month, there is a new "break-low" sale price in your neighborhood, do you honestly believe that banks are somehow going to magically lend a buyer of your home more than what the neighborhood's fair value is dictating? Trust me, they are not. You will need an ALL CASH buyer, who will opt to forego the appraisal process. And while there may be many ALL CASH buyers out there, they are not many stupid enough to forego an appraisal process.
Bottom Line: If you are remotely thinking about selling your home, understand the reality of what is going on in the current market or hire someone that does. If you don't, you will undoubtedly become frustrated with the process. For questions regarding your specific situation, I am available for consultation anytime.
Jason Kapit, Esq. is a Realtor with EWM. Contact Jason at 954.650.4443, buzz@jasonkapit.com or www.jasonkapit.com.
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