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Sunday, March 28, 2010

What does it take to get my house sold?

What does it take to get a home sold?
People often ask me that question. Sometimes it seems so random – why this home versus that one? Sometimes it is luck… but more often than not, six elements come into play to get a property sold. I’ll talk about the six elements in detail. In order of importance, they are:

1. Price – What is the list price of the home?

2. Location of the Property – Where is the property located?

3. Condition of the home – What is the condition of the property (i.e, up-to-date versus fixer upper?)

4. Market Conditions – What kind of market is it? Buyers’ Market? Sellers’ Market?

5. Buyer financing – Is the buyer qualified to buy the property and what kind of financing can they get?

6. Marketing – Buyers need to know about the home in order to make an offer… marketing provides the buying community information about the property.

OK, so I’ll start with PRICE.
If you randomly ask people what’s the most important factor in buying real estate, more often than not, they’ll say: “location, location, location.” WRONG

The answer is “price, price, price.” If location was the most important factor, we would all buy homes along the lake. The list price is the single most important factor that goes into purchasing a home. That is first criteria that buyers consider: Do I have the financial capability to purchase this home? If the answer is no, then the property is eliminated from the search.
Misunderstanding this fact is a mistake that a lot of sellers make when pricing their homes: “I’ll price it high and see what kind of offers I get… I can always negotiate later.” What they don’t realize is that by overpricing the home, they may have eliminated a lot of qualified buyers from ever seeing their home, which brings us to the first principle of price:
Principle 1: Overpriced homes help sell properly priced homes!
One never knows how many showings are missed, because of an incorrect price.

So how do you price a property? First and foremost, it needs to be priced at TODAY’s prices – not last year – not even six months ago. Selling real estate is probably one of the best examples of Economics 101: the law of supply and demand -- with surplus supply comes lower prices.
Principle 2: Properties usually sell for fair market value.
While sellers and buyers may disagree what fair market value is, the market always decides. What a seller needs or wants from a home has absolutely no correlation to what a buyer will pay for a home. The buyer doesn’t care what the seller wants. Buyers will only pay only what they believe market value is and no more. At the end of the day, the value of home is what a buyer will pay for it and what a seller is willing to accept. (See my previous blog entry, Home as Shelter.)

Most homes go under contract in less than 90 days from the final list price of the home (in other words – what is the current price after any price reductions) and it more than likely won’t go under contract until the list price is within 10% of the probable sales price. Buyers purchase homes by comparison and will usually make an offer to purchase on a fairly priced property before making a low offer on an overpriced listing.

Principle 3: Buyers will pass on overpriced homes and wait for price reductions.
In a declining market, research has shown that the shorter the market time: the higher the sales price. As prices continue to drop, sellers need to price their homes ahead of the curve – not behind it. Otherwise all price adjustments are too little -- too late. Read more at Selling your home quickly
The lower the price, the better the chance that multiple buyers will make offers; thus creating greater demand. We get back to rule of supply and demand – greater demand means higher prices.

Principle 4: Leaving room to bargain isn’t as valuable a negotiation tool as bringing in a greater number of more highly motivated buyers through setting a competitive price.
I hear all the time: my house was appraised at… or my house is assessed at….
Principle 5: Don’t confuse market value; assessed value and appraised value.
You can read my previous posting on this: What’s the value of my home?
On a final note, one of the things I’ve noticed is how buyers psychologically react to a property based on their perception of the list price. If they believe the price is high, they tend to pick at everything: “I don’t like the sliding doors;” or “the garage needs painting”; or “I don’t like the laundry room, etc. “ When something is fairly priced and believe the property a good value, they overlook its shortcomings and see only potential: “I could move that wall over there;” or “wouldn’t this room look pretty in yellow.” I can almost always tell the buyers perception to the price just based on their comments. When a buyer makes a negative comment about a house, what they are really saying is that they are not willing to pay the asking price for a house that has that problem. It’s as simple as that.

The challenge that sellers are facing today is that they have no control over the motivation level of their competitors and are having to compete with distressed sellers. Regardless, the key to getting a property sold is to price it correctly on day 1 and price it to sell! When pricing in a buyer’s market: price as close to market value as possible. We’re in a buyers’ market – buyers are only making offers when they perceive the home has good value.
Stay tuned – Next time, I’ll discuss location.