Does Listing Price Matter?

Let’s imagine a red hot housing market.

A seller decides to sell their house. All of the recent sales in the area suggest a value around $550,000. The seller looks at the recent sales and prices their place at $575,000. (They want to give themselves some negotiating room.)

It turns out prices are on the upswing, and no other house like theirs is listed below $650,000. Also, they are in a very desirable area.

Chances are you will lose a lot of money

if your home is not correctly priced!

Two things can happen.

1.       The seller puts their home on the market for $575,000. It receives multiple offers and sells for $580,000.

2.       They put their home on the market for $650,000. It sells for $650,000.

The buyer is getting a loan. The home does not appraise and the buyer decides not to buy it. They put it back on the market and accept a cash offer for $637,000.

Which seller would you rather be?

·         The one that sold for $580,000?

·         Or, the one that sold for $637,000?

And don’t tell me that stuff

doesn’t happen in real life. It does!

Situations like this happen in all sorts of markets. There are many crazy things you see in the real estate business. Most agents just get used to it and after a while, it isn’t a big deal anymore.

Bottom Line: Before you put your home on the market, check to see what your home is really worth.

Let's take a real life example of a seller that underpriced their home:

      Three similar houses in one neighborhood sold between May and June.

      One house sold for $750,000.

      The other two sold for $840,000 and $860,000.

      The $750,000 place went on the market on April 18th.
It sold the same day.

      The $840,000 house was on the market for 280 days.

      The $860,000 listing was on the market for 46 days.

Are you wondering why the first

house sold for so much less than the other two?

      The more expensive houses were the same size or smaller.

      The more expensive houses were not any nicer.

      The more expensive houses were built around the same time. In fact, the $840,000 home was 9 years older. (Built in 1990 versus 1999 for the $750,000 place.)

      The $860,000 listing had a nice in-ground pool. That explains some (but not all) of the price difference.

I can’t say exactly why the first house sold for so much less, because I haven’t seen the inside of all 3 homes.

I do know this:

In most cases, if a house sells without being on the market for at least a week, it probably sold for less than its fair market value.

The house that sold for substantially less also sold very fast. Meaning that the sellers didn’t have time to get a feel for the market. Chances are high that a savvy buyer swooped in and got very lucky!

Here is another example:

      Four similar houses in one neighborhood sold between June and August.

      The $285,000 house was on the market for 1 day.

      It was put on the market on July 17th. Sold the same day.

      Three similar houses sold at prices between $321,000 and $350,000.

      All of these houses were nice homes in similar condition.

      None of them had a pool or any other obvious features that would explain why they should sell for more money.

I can’t find anything to explain why the first house sold for $36,000 less than the next cheapest sale.

      The $321,000 house was on the market for 88 days.

      The $348,900 house was on the market for 21 days.

      The $350,000 house was on the market for 24 days.

      None of these three sales was a bank owned listing, foreclosure, or short sale. In fact, a comparable bank owned home even sold for $307,000 in August.

(If a bank owned home is selling for more than your home, you are making a serious mistake in pricing!)

      None of them had a pool or any other major features.

Bottom Line: The seller who sold their home for $285,000 lost quite a bit of money.

Sellers can also make bad pricing

decisions in a slow housing market.

I’m sure some of you may be thinking, “None of this matters if the local housing market is horrible. When prices are dropping, I don’t think I run the risk of underpricing my home.”

Here is an example of how you can lose

money in a slow housing market.

An owner of a nice home had financial problems and couldn’t pay the mortgage payments. He hired an agent to sell the house.

The house was selling as a short sale.

The seller owed about $400,000 on the house, but it was only worth $380,000. He wouldn’t be able to sell the house unless his lender agreed to accept a payoff below the $400,000 he still owed.

This type of a sale is called a “Short Sale.” The bank is settling for a payoff which falls short of the total amount they are owed.

A buyer offered to buy the home for $378,000.

The seller’s agent put together an entire short sale application package and sent it to the seller’s lender. The lender reviewed it and refused to agree to the short sale.

The agent put the house back on the market. The next offer came in for $373,000. The agent put together the entire short sale package again and submitted it to the lender. They also rejected that offer.

The agent gave up on the short sale and took the home off the market. The seller could not afford to make the payments, and the home ultimately went into foreclosure.

The lender foreclosed on the home

18 months later and sold it for $230,000.

I am sure you are wondering why the lender did not accept the original $378,000 offer. You’re probably asking yourself, “How could they be so stupid?” I could go into all of the reasons, but I don’t want to waste your time.

Two main reasons this happened:

First, most of the huge national banks do not own the loans they are handling. These banks do not have much to lose if something goes wrong.

You may not know it, but the large banks sell most of their loans to Fannie Mae, Freddie Mac, or another party. The Federal Government through the FHA, VA, and USDA programs insures them against loss.

Based on research statistics, a third party owns or insures 80% of all the loans held by one of the largest banks in the US.

Second, and we saw this in the last big downturn, banks can easily be overwhelmed with files and run short on people to process them. The process to approve a short sale can be very bureaucratic and inefficient. Even worse, clerks who are not aware of the importance of timely processing can cause the whole transaction to fail!

How does this apply to a person selling their

house during a slow housing market?

If you do not price your house aggressively, you may lose money as you chase the market down. Your home’s value is dropping and you are stuck trying to catch up with the dropping market. This applies mostly to a market that is dropping very quickly, like the 2008-2010 housing crash.

 

Relates To  -  home seller tips