When Should A Seller Lower A Price On A Listing?

June 25, 2008

On another website–Trulia–I was asked this question:

Should home sellers continue to lower prices in tandem with the National/Regional trend were house value is going down or should you stick to a price and await offers?? The crux of the question is does lower price = more showings and offers??

 My response was:

Make sure your home is in the lowest (least expensive) 20% of the comps for your specific property. So, for instance, to oversimplify, if you have a 4 bed/2.5 bath home on 1/4 acre and the comps for similar homes in your neighborhood are $500,000, $505,000, $510,000, $515,000, and $520,000, then your house–to have the best shot at selling quickly for a reasonable price, should be priced no higher than $505,000.

Real estate is local. You’re competing against the comps for the buyers. So, from a purely pricing standpoint, you absolutely want to make sure that the buyers view your house, and that your house is priced attractively.

That also means the comps you use, in today’s market, should be as fresh as possible. Try to keep them within 3 months. Certainly no longer than 6 months. Then, every month, have your agent run the comps again.

The attractive price and good marketing will get more viewings. The final piece of the puzzle is that your house needs to show well. That’s the connection you need between “more showings” and “offers.” Make sure your house is in good shape. Consider using a home stager. Listen very closely to any suggestions your Realtor makes. You may not aesthetically agree with the suggestions of a Realtor, or even a stager. But a stager will make your home look good. And a Realtor knows what buyers are looking for.

A final point, obvious but necessary to state: There’s a relationship between price and how long a property takes to sell. That’s true even for reasonably priced properties, and even in warmer markets than we have now.

If you’re using a Realtor, ask the following question: “If I price my house at $X, how long do you think it will take to sell?” To use the example above, there’s no one absolutely “right” price. But it’s reasonable to assume that if you price your property at $499,999, it’ll probably sell somewhat faster than if you price it at $509,999. If you need the extra money or can afford to wait, perhaps price it higher. If you need to sell right away, or you don’t need to squeeze the last dollar out of the transaction, consider pricing it lower.

In a decling market, though, you absolutely don’t want to be “chasing the market.” Or, as is sometimes described, you don’t want to try to catch a falling knife.

Foreclosures and Short Sales: Are They Good Buys?

June 6, 2008

There’s a general belief that foreclosures and short sales represent good values. Especially in today’s market, a growing number of buyers are asking their Realtors to find foreclosures or short sales for them. Even–perhaps even particularly–first-time buyers assume that a short sale or foreclosure must be a bargain.

But are they the bargains many assume them to be?

Sometimes yes. Often no.

Let me get very specific. There’s a house that’s active right now in Woodbridge, Virginia. I ran across it when checking comps on a property recommended by an investor. (More about that in another post. That lesson, in brief: Always, always, verify claims as to value.)

The house that I ran across is a 3 bedroom, 1.5 bath townhouse. It was bought on January 18, 2006 for $285,000. In early 2007, it was on the market as a short sale at $198,900. Was that a good deal? Well, gee, that’s a 30% discount, right?

The bank foreclosed and took it back on July 3, 2007. It’s now an REO (“real estate owned,” or bank-owned), listed at $186,900. Now, THAT must be a bargain, right? That’s a 34% discount from the $285,000 purchase price. Ready to write a check? I hope not.

I ran the comps on that neighborhood today. There were 34 comps–3 bedroom, 1.5 bath townhouses in that subdivision–properties that had been listed for sale within the past 180 days. Of those 34, 4 had sold. Here’s the information on those 4…the only 4 to have sold. (Note the downward price trend):

4610 Whitaker Place
Close Price: $130,000
Seller Subsidy: $3,900
Close Date: April 14, 2008
Days on Market: 278

4747 Hedrick Lane
Close Price: $140,000
Seller Subsidy: $5,600
Close Date: March 26, 2008
Days on Market: 230

4682 Hercules Lane
Close Price: $172,000
Seller Subsidy: $13,760
Close Date: March 15, 2008
Days on Market: 71

4666 Prather Place
Close Price: $180,000
Seller Subsidy: $5,400
Close Date: December 10, 2007
Days on Market: 113

There are two houses in the subdivision under contract. Because they’re under contract, we don’t know the sale price or whether any seller subsidy was involved. However, we can assume that the effective sales price is below what the properties were listed for:

4646 Charlton Ct.
List Price: $134,900
Days on Market: 6

4728 Still Place
List Price: $94,000
Days on Market: 344

Among the active listings:

4667 Charlton Court
List Price: $120,000
Days on Market: 143

4645 Charlton Court
List Price: $125,000
Days on Market: 167

4675 Whitaker Pl.
List Price: $125,910
Days on Market: 65

So what’s that tell us? The fair market value of that REO at $186,900…that had been a short sale at $198,900…is probably in the neighborhood of $110,000.

And notice the “days on market.” Even the houses that are selling are taking months to sell.

Now, most of the other REOs in the neighborhood aren’t as badly overpriced. But others are priced at $139,000, $135,900, $129,900, and another at $129,900.

Are those good deals? Well, maybe when compared to what they sold for a few years ago. Maybe when compared to what they’ll sell for 5 years from now. But not when they’re compared to what’s selling…and not when you taken the downward price slide into consideration.

So: Don’t assume that just because a property is a foreclosure or a short sale, that it’s a good value. It may not be. Always check the comps.