Everybody always thinks about a buyers market as a bad thing for sellers. This may not be true. If you are selling your home and are not planning to purchase a replacement, or if you plan to buy a less expensive home, then “yes”, a buyers-market is a bad thing for you. If you are in one of these two categories, then you should ask yourself; Do I really want to sell? Remember that in a buyer’s market, you are not going to get the great price you want, you might not even get what the home is “worth”. Therefore if you don’t have to sell now, it might be best for you to wait for a better market.
There are two other categories however, that apply to many sellers and to these sellers a buyers market can look pretty good. If you are selling your current home and planning to purchase a more expensive home, this is a great time to make a move. A 12% price decline on a more expensive home is more total cash saved than the same 12% loss on your less expensive home. “Yes”, your house is “on sale” but so is the one you are buying, and the savings on the more expensive home is even better.
If you are both selling and buying in the same price range, it really doesn’t matter that prices have fallen. You sell AND buy for less, it is a wash. This combined with the fact that there is WAY more inventory to choose from right now so you can be picky. Sellers are willing to make more repairs, pay for more incentives and give you more time to close escrow on the house you are selling. Remember, for half of your real estate transaction, you will be the “buyer”, and THIS is your market!
For all sellers the question of how to determine the CORRECT listing price of their home is perhaps the biggest single issue to start the process. In the Seller’s market we had a few years ago in the Santa Rosa and Windsor area, pricing wasn’t such a big deal. If you priced your home too low, buyers would just bid the price up to a market level. If you priced your home too high, the market would continue to escalate and eventually meet your price. Those crazy “Seller’s-Market” days are gone and while they may return, it won’t be for a while.
In the strong Buyer’s market we have today, if you price your home too low you usually cannot raise the price without taking the home off the market for a month or more. Even then, real estate agents will look in the Bay Area MLS, see the previous low price and inform their clients. If you price your home too high, it will just sit on the market for a long time with little interest from Buyers. Statistics show that the longer a home sits on the market, the lower the price the home will eventually get.
One of the first mistakes many sellers make in pricing their home is to arrive at a price based on what they PAID for the property when they bought it. This reasoning goes something like this; I paid this much for the property, I think I should make at least this much profit (or at least I want to break even) therefore I will sell it for X. The problem with this approach is that buyers do not care what you paid for the property, and what your property is worth in the market today has nothing to do what you paid for it when you bought it. In a real estate sales transaction, your property is only worth what someone is willing to pay for it. Buyers will determine their offer amount based on what other homes in the area are selling for. This “competitive limit” that the market sets on your home value is best determined using a properly created CMA (Comparative Market Analysis).
The best way to avoid improper pricing is to get a professional CMA (Comparative Market Analysis). I recommend that you get a CMA from at LEAST two real estate agents in the area. This is a free service most agents provide and I you should get a CMA even if you are planning to sell the house without the use of an agent. The expert opinions can’t hurt.
While you are getting several Comparative Market Analysis done, each agent will talk you through the process they used to come up with a sales price. Listen carefully; there will be some great information in these discussions. Ask lots of questions. If you have decided to use an agent, do not just automatically select the agent that proposed the highest list price. Some agents will “over-inflate” the listing price they suggest to a seller, because that is what the seller wants to hear. Their theory is that you will eventually lower your asking price after you realize how few buyers are looking at the house. They also HOPE they will still be the listing agent once you have done this. Of course, you have lost your New-to-the-market appeal and just wasted valuable time with an unrealistic price. These kinds of real estate agents are bad for you and bad for the profession.
What you really should be looking for is the agent that did the most work in calculating your list price. Did they produce good data? Did the presentation make sense? Remember that the CMA (Comparative Market Analysis) only reflects the history of the market, in other words "what has happened in the past". What we're looking for, of course is some kind of a predictor for what is going to happen in the future. Therefore, part of the CMA must include a conversation about where the market has been and where it is going. Does the agent do a good job with this? Be sure to put all this information together to make your decision, maybe the best agent DOES have the highest price, but maybe not.
Ask your agent what the average time to sell a house in your neighborhood is. If you need to sell YOUR home faster than this average time, your home must either be “Above Average Quality” or “Below Average Pricing”. Just like Garrison Keillor’s Lake Wobegone town where ALL the children are above average, most sellers think their home is “Above Average”. At least half of them are wrong.
If you need to sell quickly in a Buyers-market, then you will probably have to price your home BELOW the current market price. In a Buyers-market if you have a deadline to move or need to get out from under a high mortgage, then under-pricing may be the best answer. However, if you don’t need a quick sale, then under-pricing a home, of course, results in an unfortunate and unnecessary loss of money to the seller. Proof as to how wide-spread this under-pricing has been in the last five years is the spawning of an entire industry of people who purchase underpriced properties, add a little paint, then flip them a short while later for a much larger sum of money. It got so popular that the networks even made TV shows about it. These under-priced homes are the homes that fuel the NAR statistic showing that For Sale By Owner (FSBO) properties sell for 33% below market. So regardless if you think you need to sell quickly, you should still get a professional CMA to help guide your pricing decision.
While under-pricing is certainly a problem that should be avoided, by far the biggest problem most sellers encounter in a strong buyer's market is overpricing their property. Overpricing a home has so many devastating effects on the value of the property and time it takes to sell, that it is the single most crippling factor in a buyers market. The following paragraphs are examples of some of the more common problems that sellers with over-priced homes encounter in the Santa Rosa and Windsor market.
The price of your home is the first thing any buyer will look at. It might also be the last thing. In a buyers market, buyers BEGIN their search in the lowest portion of the price range and work their way UP. They look at your listing price in comparison to all similar homes and if your price is too high, that is all the consideration your home gets. They are done. They are now planning a tour of the five similar homes in your area that are priced lower than yours. They don’t care how wonderful the kitchen looks or spacious the master bedroom is. They don’t care, because they don’t know. They don’t know because they never come to your house to look at it to find out all the great features.
People do not buy homes because the advertising is great, they buy them because they loved the property and it was priced right. Great advertising and proper staging can sometimes get fence-sitters to consider the home, but they can NEVER compensate for an over-priced home. As I mentioned above, if you are not getting a significant amount of buyer traffic, your home is priced too high. It is that simple. On the other hand, if you are getting decent traffic but no offers, the problem may also be pricing but it may be something wrong with the home that can be corrected. If you can identify the problem and correct it, you have a chance. If you can identify the problem and CANNOT correct it (or if you cannot even identify the problem), your only options are to reduce the price, or take the home off the market and wait for better market conditions.
Research has shown that starting with a high price so that you have “room to negotiate” ultimately means your home will sit on the market longer and sell for less money than if you had priced at correctly to start. Overpricing a property and the required series of price reductions also convey an image of desperation to buyers in the market. This often results in low-ball offers as buyers fish for the best price the seller will take. In the Santa Rosa and Windsor real estate market, Buyers view an over-priced home as part of the sellers marketing strategy. They assume the seller chose the “Start high because it gives you room to negotiate” philosophy. The Buyer naturally responds with an “Offer low so you have room to negotiate” kind of response.
Buyers don’t want to be taken advantage of, so they offer something really, really low to be sure they are below the seller’s minimum acceptable price. If the seller isn’t offended by the “low-ball” offer, they may counter with a slightly better price than their original asking. The problem is that the buyer got very focused on their way-low price. They spent time coming up with the price, they spent the time to write an offer at this price, spent time thinking how great it would be to buy the house at this price, etc. They spent so much time with this price in their heads that when the buyer gets the seller’s counter-offer it still looks too high. The “Start high” philosophy forces the buyer into a fantasy world that is almost impossible to recover from. I have seen very few sellers successfully get past this issue. What I have seen happen quite often, is the seller gets so frustrated with all the low-ball offers that the first offer that isn’t “Stupid Low” looks pretty good and the Seller ends up selling the home below market. You have to price it right from the start.
Even if your spectacular marketing materials got you some buyer-traffic, it won’t solve an over-pricing problem. I have found that the vast majority of buyers who are really serious about buying a home do not re-visit an over-priced home. Part of the reason for this is that when a Buyer looks at a home that feels “over-priced” they start to actively look for reasons they don’t like the home. They find little things and make them big. The only exception to this may be properties that are true one-of-a-kind, exceptionally unique homes. Of course, EVERY seller in the Santa Rosa area thinks their home is truly unique and 95% of them are wrong. Also, in case you were wondering, the home has to be unique in a GOOD way.
Serious Buyers simply forget about the over-priced home and focus on the homes that ARE properly priced. Occasionally I might hear a Buyer say something like; “Well, it’s overpriced, but if we don’t find anything better, maybe we will come back and look again”. But they never do come back, they get lost in all the properties that are correctly priced, or new to the market.
Another pitfall from overpricing a home and allowing it to sit on the market for a long time is the stigma that gets attached to the property in the Multiple Listing Service (MLS). Buyers and agents view long market exposure as a primary indicator of an unpopular home. If a home sits unsold for a long period due to over-pricing (or for any reason), this poor market performance is recorded in the Multiple Listing Service for many years. When you later decide to try and sell the home again, most buyers won’t know WHY the home sat for so long, so they just assume the home was unpopular with other buyers. If it was unpopular then, it probably will be today and Buyers mentally discount the home. For this reason I strongly discourage sellers who are not very serious about actually selling their home to avoid putting it in the market simply to test the waters. It hurts you next time you go to sell.
Even when price reductions are used to cure an over-priced home, I have seen many homes that were priced too high end up sitting on the market for so long that buyers forgot they were there. Buyers and their agents are watching the newest stuff that hits the market because most people think this is where the best deals are to be found. They watch the New Listings so closely that they don’t even notice when an over-priced home slowly becomes a great bargain due to price reductions. I have even seen great homes sit unsold while newly listed homes of lower value sold for the same price JUST BECAUES they were new to the market. It’s a crazy world, so get a good (CMA) Competitive Market Analysis (CMA) and price your home right from the start.