The Price is Right?
Jill, Sarah and I will take a breather from Opens this weekend as nearly all of our properties are currently in escrow. That's no small feat, given our recent volume, and one that couldn't come at a better time as Sarah heads to her daughter's graduation in LA for the weekend, and Jill is off to cheer-y-o London to visit her daughter for 10 days, leaving me to sip tea alone.
However, just because we're heading towards the finish line on several properties, it doesn't mean I'll be getting much rest while they're away (turnabout is fair play).
We've also got half a dozen NEW listings coming in the next few weeks/months, and they are all in varying stages of preparation, from clean-out to staging, and everything in between!
While every phase in the chain presents its own set of challenges, perhaps the toughest component of them all is pricing. With the clear understanding that Realtors are NOT setting the value of a property, but creating a marketing strategy designed to bring the highest and best results, correctly pricing a home can be nearly impossible as we navigate the escalating marketplace - not to mention Sellers' GROWING expectations. (Value IS a moving target.)
"We know you can't say for sure, but what's our property worth?" Sellers ask with HUGE dollar signs in their eyes.
We know what they want to hear. We know an inflated response is likely to get us the listing. We know that they've watched their neighbor's house trade high in a bidding war, and we know they've been listening to the hype of their well-meaning but uninformed friends, BUT the truth is we don't know your home's particular value until we bring it to market and see how the market responds.
Here's the thing: NO ONE ELSE DOES EITHER!
Sure, we can analyze "nearby "like-kind" sales to create a comprehensive sense of "value," but in the end, the "market" value of a property is ultimately determined by timing, condition, and demand. Let me repeat that because it's important to understand: the market value of ANY property is determined by timing, condition, and demand - NOT what you paid for it; NOT what you want: NOT what you need: and NOT what you must have. . . (Regrettably, Buyers don't care about any of those requirements.)
Sometimes we set a price only to discover that there are significant hidden issues with the property, and then the listing has to be adjusted accordingly to accommodate those unexpected findings. Unless the Sellers "cure" the house before bringing it to market, there's likely to be a discount for deferred maintenance and unwelcome discovery. In other words, there's no side-stepping a failed foundation or tens of thousands of dollars of dry rot beneath the stucco or around numerous windows. Unfortunately, it is what it is.
"That can't be; we took great care of the house."
I'm sure you did, but when is the last time you had a structural, pest or foundation inspection? Like aging people (it's if not one thing, it's your mother) older homes can present defects that homeowners are blindly unaware exist. It's the reason we recommend inspecting properties prior to bringing them to market - ultimately it's to protect the Seller as any negative discovery during the escrow period can be fatal.
Conversely, a property we thought might fetch X, gets entirely transformed during the preparation period, and suddenly it's value skyrockets to Y or better yet, Z. Congratulations! You got the "gift." (That's a far more pleasant surprise, but not one we can count on.) Your job is to now recognize it as such, and pop the champagne; it's time to celebrate.
Adding to the mystery around "value," is the rampant practice many Realtors have adopted of setting a list price so far below the anticipated outcome that it makes it hard for both Buyers and their Agents to figure out the bullseye. (Between you and me, I don't love this game, but it's hard to argue with the results.)
"Why is this house being listed for less than they paid for it two years ago?" Buyers ask.
To be blunt, it's bait.
Disingenuous or not, much of today's pricing strategy is good old-fashioned slight of hand. If a house is priced well under value and then it sells for much more, that makes economic sense, but it also gives the Agent a platform to tout FANTASTIC statistics that don't represent anything more than the simple fact that the house was WAAY underpriced to begin with. Consequently, the market carried it UP (as markets will).
So don't lose sight of the game, the outliers, the one-offs, the rumors, the reality, or the market forces at play. Irrespective of these conditions, savvy Buyers tend to find the sweet spot with respect to "value" in a free-market economy such as ours. Whether the outcome meets a Seller's expectations often has more to do with whether those expectations were realistic to begin with.
In the end, I suspect the price IS right if it achieves the desired goal. (So what's behind door #2?)
The task at hand is to keep our eye on the target and to recognize that the list price bears little resemblance to the final sales price. (It is what it is.) With facts in hand, take aim and shoot!
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Julie Gardner, has been writing The Perspective for 18 years and has published more than 670 essays on life and real estate.