It is always amusing when Realtors meet with potential sellers, and the conversation around pricing is often filled with comments from the seller such as “I want X amount for my house” and “my house is worth X because the house around the corner sold for Y, and mine is nicer”. And Realtors, sometimes under pressure to tell the seller what they want to hear, chime in with “yeah, I think you can get X for your home! It is magnificent!” or “yeah, the market is slow, but looking at your home, I’m thinking it is worth Y”. Often, Realtors and sellers get into a kind of “groupthink” situation where each one reinforces the other, and before you know it, they have worked each other up into a frenzy. The only problem is that there is one party who is a huge part of the equation regarding the value of the home, and their point of view is usually not represented in these meetings of the mutual admiration society… I am speaking of course about buyers. And guess what? Surprise… they usually have a totally different opinion about the value of your home.
The fact of the matter is that it is the opinion of the buyer that counts the most. They are the one(s) writing the check, so you must see the market through their eyes if you want to sell your home in this market.
Price Vs. Value . You see, all the seller and the realtor can do is set the asking price for the property. They can not set the value. The value is determined by buyers and the strength of the market in that price segment. So the seller and Realtor might agree to set the asking price of a given home at $900,000, for example. But if they receive no offers and very little interest after 30 -60 – 90 days, then the value of the house is not $900,000.
So if buyers ultimately hold the power in determining the value of a home, it makes sense to try and understand how buyers view the market. What is the mood of buyers today? What is important to them? What are their concerns? So here are some things that buyers think about when evaluating a house in this market.
How Long has it been on the market? This is the first question buyers ask about a home without fail. Why? Buyers want to gauge how much “room” there might be in the asking price, and how desirable the house is to the market in general. If the answer is “90 days”, then the buyer will generally assume it is overpriced, and mentally discount the value of the house. Or worse yet, buyers will ask themselves “what is wrong with this house that no one else is interested in it?”. Either way, it is not good. Of course, if the price has recently been reduced, it helps reduce the impact of this question. If the answer to the question is “3 days”, then the buyer knows that there is likely not as much room in the asking price, and will need to be fairly aggressive in terms of the offering price if they want to make an offer. The fact is the seller’s position weakens the longer the house stays on the market.
I don’t want to be a fool. Buyers, whether they verbalize it or not, are afraid of making a mistake. No one wants to buy a house for $900,000, only to find out it is worth $800,000 six months or a year later. In a soft market like this, buyers need to feel somewhat insulated against future price erosion. Translation: buyers want to buy your home at a good enough price that the market can slide some more, and they will still feel okay about it.
It needs to be as close to move-in condition as possible.. To have success in this market, buyers have to be able to move in without having to do a lot of updating or work. Buyers just don’t seem to be in the mood to buy homes that need a lot of work, unless it is at a substantial discount. So carpeting should be new or newer, paint should be fresh, and there should not be any repairs or touch up items needed. Sellers in this market need to eliminate as many possible buyer objections as possible before the home goes on the market.
The value has to be justified. Buyers have to be convinced that the price is justified by hard data. Comps or comparable sales are great. The only problem is that sellers tend to gravitate towards the sales at the higher end of the spectrum, and guess which sales the buyers tend to give most importance to? The lowest ones, of course. It takes a seasoned professional to explain both the high comps and the low comps to the buyer so that they can be reasonably certain that the value is there for that home.
If it’s not near perfect, I am better off waiting You can’t blame buyers. There has been an onslaught of negative media attention on the real estate market, and the economy. This leads to insecurity and uncertainty on the part of buyers today. So if the house is not exceptional in terms of value, or close to perfect in terms of condition, buyers often revert to waiting.
It takes strong value in today’s market to get buyers to act. Your home has to stand out in your price segment in order to attract the attention of serious buyers. Smart sellers know that they have to leave some money on the table if they want to sell today.
Now that we talked about what buyers care about, here are some examples of what buyers don’t care about:
* How much the seller “needs” in terms of the sales price. Adding the phrase “because the seller really needs the money” to an ad will have zero impact with buyers. They don’t care.
* How much potential there is. Buyers buy what they can see, and they buy what the property has now. Buyers don’t generally assign much value to the fact that you could add a guest house, pool, sports court, or family room addition for example.
* The seller is offering a credit of $50,000 to remodel the kitchen, or baths, or flooring, etc. Bad news: Buyers are not willing to undertake remodeling or updating unless there is substantial incentive to do so. Sellers see a dollar amount associated with upgrades. Buyers see spiraling costs, flaky contractors, living with chaos, stress, and a huge hassle. Buyers are more likely to pass on your house and buy one that they can move right into.
* That you spent major money remodeling your kitchen and master bath 10 years ago. That was then, this is now. In fact, improvements you made 10 years ago might be out of date today.