Some Sellers Just Don't Understand the Buyers Market

Seller

Price is the Key to Selling in a Buyers Market

Overpricing a home in a declining market can cost you more in the long run then under-pricing

I am having a hard time explaining to one of my sellers the current reality of the market. Please let me know what other information you would need to see in order to understand the Jacksonville real estate market. (Names and prices have been changed to protect the innocent.)

Subject Property

They have an older home on a main street that receives a lot of traffic. The Sellers wanted to try selling their Jacksonville Florida home at the price they thought their home was worth against my professional judgment. We agreed to a short trial period of marketing their home at their price, $374,900, to see how the market responded. The result has been that the Sellers have received very few showings and the feedback has been that the property is over-priced.

I have updated their comparative market analysis (CMA) and single out these few key competing properties that are currently on the market and a few sold properties to show them that a price reduction is necessary.

Competing Properties Currently on the Market

Comparable A

A home that is 60sf smaller but similar in every other way except located on a more desirable low traffic street. This home is priced $15,000 below theirs at $359,900.

My comments to my Seller:

It is smaller then the subject property but has a better location by not being on the main street. (This is a concern to families with small children). So the real questions is would someone rather buy a slightly smaller home on a better location and having the option of putting $15,000 of extras into it or buy the subject home and not have the extra cash to upgrade. Most buyers would go for the more affordable option at $359,900.

There is no exact formula to tell how much the value of the better location is but people are comparing this home to the subject property and it comes out more favorable. I encourage them to see from this data that they should be priced slightly below Comparable A to account for the high traffic street they are on. The small size difference doesn’t compensate for having a less favorable lot.

Comparable B

A home that is the exact same size but 30 years newer and in a more popular subdivision. This home is priced the same as the Sellers at $374,900.

My comments to my Seller:

Buyers rather buy a newer home that will need less maintenance and upgrades in the near future. In addition, this is a more popular community that demands a higher price. Also the newer floorplans more modern designs that follow buyers needs. Newer floorplans typically have larger closets, larger master bathrooms and a more open floorplan that buyers favor. The subject property should be priced significantly below this one.

Sold Properties

I provide them with similar sold properties that have sold within the past 2 months so to capture the most recent trend in the declining market. (Properties are still selling in this market)

Comparable C

This home is 90sf smaller then the subject but had more upgrades and sold for $15,000 below the subject’s current price at $359,900. Comparable C is also on a better street that is low traffic.

Comparable D

This home is 13sf bigger then the subject, has similar upgrades to the subject, and sold for $13,100 below the subject at $361,800. Comparable D is 100sf bigger then Comparable C and sold for $1900 more. So square footage on these properties doesn’t add a lot of value ($19/sf).

My Comments on the Sold Properties

You can see from the two most recent sales that the square footage difference of 100sf only affected sales price by getting the bigger home $1,900 more. So even though your property is bigger then Comparable A which is priced at $359,900 there is only about $1,900 more in value and the subject is priced $15,000 more at $374,900. And this is not taking into account the subject being on a less valuable lot then Comparable A.

Buyer Can't Get Financing for Overpriced Home

Appraisers are being very tight since the banking crisis and I have heard of a lot of low appraisals coming in. So if we even get your numbers on a contract from a buyer … the buyer won't be able to get financing. An appraiser is not going to appraise the Subject for $15,000 more then the last similar homes that sold.

A Higher Appraisal Must be Justified

Pricing a property is not an exact science and if we are within 1 - 2 percent (%) of the other homes then the appraiser may give to us if they can justify this extra value in things like: more interior upgrades (not just paint but actual new cabinets or upgraded flooring like tile or wood), more features such as a screen porch or having a larger lot. But we can’t count on it.

Pricing Not Only for the Comparables but also the Market

We have been in a declining market meaning that the next home to sell may sell below these figures. So we can keep on chasing the market down or we can price your home ahead of the declining market so that we can put an end to the price reductions and cut the losses. It is better to be seen as a great value then to be seen as those desperate sellers that keep on reducing their price. It is better to turn down 10 contracts then to not get any. We pride ourselves on our negotiating ability and we know if we get a true buyer interested in your home we will get you the best price possible.

Buyers Can See What Your Neighbors Sold For

I know this is a harsh truth but I want to make sure you understand that buyers and their agents have access to what the last homes sold for. They are going to look at your home and wonder why should I pay $15,000 more for the Subject then the last home to sell?

There is a Bright Side to the Buyers Market

I know this is less then what you wanted to sell the home for. However, my other sellers that have found themselves in the exact same situations and who did reduced their homes to sell ending up selling their homes in this buyers market. And more importantly they made up their financial loss when they made a killer buy back into this market! So it does even out.

Don't Try to Time the Market

In fact, yesterday I had a call from a past client who wanted to thank us again for selling their home because they just drove through their old neighborhood and saw that similar homes to the one they just sold are now on the market for less. So it worked for them to price ahead of the declining market.