Overprice real estate…Golf without a club
I am heading out towards the first tee at the oldest…and most renowned golf course in the world. The scenery is unbelievable, the sun is an orange with its rind slowly peeling back one piece at a time…and I know…this course is the best. I am going to enjoy a great round of golf here. Yes…it is true…I am here…in Scotland…at St Andrews Old Course.
So then I go to take my first shot, and low and behold…I realize…I can’t even play. I don’t have my clubs.
How do we relate this ever so deflating feeling to the world of real estate?
Here is an example of how the sales process works as it relates to real estate:
Judy MacLaren (we will use a Scottish name to keep the golfers intrigued) decides to sell her house. Her Realtor does a market analysis on the property, comparing it to recently sold homes in her neighborhood that are similar in style/size/# bedrooms/# bathrooms, etc. Judy’s agent informs her that her house should sell in the $350,000-$360,000 range. Judy thinks her home is worth atleast $400,000 because she bought it 10 years ago for $300,000 but she knows that her neighbor Sally sold her house 3 years ago for $380,000 and Sally didn’t have silestone countertops or a finished basement. Judy demands that her house be put on the market for $400,000. Judy’s Realtor does not take the listing because her job is to SELL the property, and feels that it simply won’t warrant a sales price higher than $360,000 in the current market.
Judy finds another real estate agent…we will refer to as “agent B,” whom agrees to list the house at $400,000. Judy ends up finding a buyer that is interested in the home and submits an offer for $370,000. Agent B and the Buyer’s Agent go back and forth with the Buyer and Judy until finally agreeing on a sales price of $385,000. Congratulations Judy!!! You were right!!
Oh wait, hold on…we forgot one minor detail. The Buyer is financing the home…of course…as do most people. The Buyer’s lender requires that an appraisal be done on the property…as does every lender. The appraiser heads out to the property, and does a full appraisal, comparing the home to recently sold homes in her neighborhood that are similar in style/size/# bedrooms/# bathrooms, etc. (does this step sound familiar at all? because it should) The appraiser notifies the lender of the appraised value of the home…$355,000. Big deal we think, right?? So the buyer can pay more than appraised value…she really likes the house. Right??
Of course NOT right. The buyer is only allowed to finance a certain percentage of the appraised value. The lender will not approve the sale unless the sales price is the same or lower than the appraised value. Judy simply refuses to drop the price to $355,000…therefore cannot in fact SELL the home. The long and short of it…she has not only wasted her agent’s time…the Buyer’s time…the lender’s time…and her own time…but she has also mentally prepared herself to sell her home, with the unexpected revelation that she doesn’t have all the tools to be able to do that. Pricing is one of the most important pieces of the real estate selling puzzle, and if you aren’t pricing with the current market, then yes…you are…attempting to golf without a club. It just won’t happen.
For more information on what your current market is doing, check out this free tool, and get real time data on recent home sales, active listings, and market trends in your neighborhood.