Imagine this scenario. You’ve decided to sell your house. You go out one morning to get the paper and you look down your street. To the left you see a “For Sale: Foreclosure” sign. To the right you see a sign that reads: “For Sale: Short-Sale.” You open up the paper and see the headline: “Existing Home Sales Continue Slide.” Congratulations! You’re selling in a down market.
Despite what you may have heard, selling in a down market is not impossible . . . you just have to put your pride aside and be a little creative with your marketing.
To understand how you should market your home, first you need to understand the competition you’ll be facing. A down market means that there is a lot more supply than there is demand (a lot more sellers than buyers). Homes sit on the market longer and buyers typically dictate the negotiations. The market is also likely flooded with short-sales and foreclosures. These two types of sellers usually employ a loss-leader pricing strategy. The loss-leader strategy involves listing a house 5 – 10 percent under market value. While they have little intention of selling the house for that price, the lower list price generates a flurry of showings and often brings in multiple offers within the first week. Their hope is that a bidding war will ensue and the final sales price will be close to market value (again, usually 5 – 10 percent over the list price). Meanwhile, sellers who decide to employ a more traditional sales strategy are left with few showings, lowball offers, and long listing times.
Something else you need to consider when selling in a down market is the loss you’re incurring on a monthly basis by holding out for your ideal price. Ask your agent to put together a detailed one year market history for your specific market. From that analysis, calculate the equity you’ll be losing on a monthly basis by staying in your house.Add that to your mortgage payment, taxes, and insurance. This sum is your true monthly cost of staying in your house.
Based on the recent sales prices in your area, work with your agent to determine a fair market value for your home. Then, look at the active listings that are similar to yours in size, quality and location and figure out a listing price that stands out from your competition. Depending on your area and the number of active listings—especially foreclosures and short sales—your listing price could be anywhere between 90 and 100 percent of your estimated market value.
Your goal is to fuel a buyer’s blitz on your home and to be in Escrow within the first 2 weeks. Preparation is everything. Don’t let your agent take your listing active until you’re both fully prepared to hit the ground running. Most showings occur on the weekend, and most REALTORS plan their tours on Thursday or Friday, so you’re going to want to take your listing active on a Wednesday. After you go active, have your agent post the listing on Craig’s List two or three times daily. He should also hold open houses on both Saturday and Sunday, and make sure you ask him to host a Broker’s Caravan to generate interest in the agent community. Additionally, have him immediately send out one or two e-blasts to the agent community advertising your home, the open houses, and the caravan. This is a lot of marketing, but it’s inexpensive and your agent shouldn’t have any problem taking care of it for you (especially when you agree to list your home under market value).
There are also a couple of things YOU can do to help your own cause. First, walk your neighborhood and pass out fliers about the sale and the open houses. Your neighbors should be motivated to help you. In case they aren’t, make sure you mention that your ultimate sales price affects the value of their home. Also mention that they have the opportunity to choose their new neighbors instead of putting it up to chance. Believe me, if the price is attractive they’ll be telling all their friends. Second, send an e-mail to all your friends, co-workers, associates, etc. The first goal of any marketing plan is to generate awareness, so don’t be afraid to tell people that you’re selling your house.
The purpose of this strategy is to generate multiple offers, create a bidding war, and drive the price point up to market value. But what do you do if the offers you receive don’t come up to your desired pricepoint? I would never advise you to take a lowball offer, but if you get an offer within 5% of your estimated value in a declining market, YOU MUST TAKE IT. Here is the nightmare scenario you’re trying to avoid:
You list your house at market value. For argument’s sake, let’s say let’s say you’re living in San Diego at the beginning of 2008 and your home is worth $500,000. You have a decent amount of showings at the beginning and you get an offer. You negotiate with the buyer and he finally gives you a final counter at $475,000 (5% below your estimated value). You reject the offer. February comes around and your house is now worth $490,000. You get another offer, this time ending at $465,000 (again, 5% below your estimated value). You reject the offer. This process continues, and at the end of the year you’re still living in your home, now worth $380,000.
In a down market, buyers are always looking for deals. On principle alone they’re not going to come up to full market value. If you’re going to sell your house during a downswing you need to be leading the market, not trailing behind it. Your ego is going to be your greatest enemy . . . don’t let it cost you.
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