Dear Sellers,
The market feels aggressive out there and you’re probably going to get multiple offers, but let’s have some real talk. Last week I wrote an open letter to buyers, but today I want to share some perspective to help your end of the transaction. Whether you are in Sacramento or elsewhere, I hope this is useful. Any thoughts?
Advice for sellers in an aggressive market:
1) Don’t get high on the headlines: It’s easy to read articles that say “the market is hot” and then ignore data in the neighborhood. It’s as if we see something in print and price according to the headline instead of actual sales and listings. Right now there are no shortage of articles saying “Sacramento is one of the hottest markets in the nation”, so be careful about getting distracted by the headlines.
2) Don’t aim for the unicorn: It’s easy to price for that one magical unicorn buyer who is going to pay more than anyone else for some reason, but I would advise you to price based on recent similar sales and similar listings that are actually getting into contract. I find some sellers say things like, “A cash investor from San Francisco is going to swoop in and pay top dollar for my property.” Yeah, maybe. But what might also happen is you sit on the market instead of sell because you priced for a mythical buyer instead of a real one.
3) Be careful to not treat the contract price as holy: We like to think there is something holy about a contract price as if price negotiation is finished when a contract is written, but that’s simply not true. If a buyer finds repairs are needed or if an appraisal rightly comes in lower than an inflated contract price, it may be prudent to reduce the price.
4) Remember the difference between “comps” and sales: We like to think all sales are “comps”, but there is a difference between properties that are actually comparable and ones that are simply sales. It’s easy to get distracted by a few high sales in the neighborhood, but if they are nothing like your property, then don’t give them much weight and pay the most attention to homes that are actually similar to yours. In simple terms, if your home was an apple, what have other apples sold for in the neighborhood? Don’t price your apple according to orange or banana sales.
5) Be aware of appraisals being scrutinized: If you haven’t sold a home in years, know the lending world has changed from what it used to be over ten years ago. These days lenders scrutinize appraisals like never before, so be careful about accepting an offer that is incredibly high if there is no way it is going to appraise that high. Of course if the buyer has cash to make up the difference, then you are fine. But if the buyer is strapped for cash, then the highest offer probably isn’t your best option. This is why many agents tell sellers to look for the strongest offer instead of the highest one.
6) Don’t hijack price per sq ft: One of the biggest pricing mistakes sellers make is to take a per sq ft figure from another sale down the street and use that figure to price their property. Here’s the thing though. There isn’t just one price per sq ft figure that applies to every single property in a neighborhood. For example, in East Sacramento the price per sq ft range for all sales last year was $169 to $552. So when a seller says, “Let’s use $552 to price my property,” my question would be, why not $551? Or why not $525? What about $436? Or maybe $278? We can quickly get a price that is far from reasonable if we are only looking at price per sq ft. Keep in mind smaller homes tend to have a much higher price per sq ft too (which I explain with my Starbucks cup analogy). My advice is to pay attention to price per sq ft, but don’t forget to look at actual similar sales in the neighborhood.
7) Try to be objective about your house: Buyers are going to look at your home with a microscope, which means they’ll see the wonderful things as well as the faults. Remember, it’s easy to get sentimental about your property because you have a history there, but memories can also be a mask for not seeing flaws. A seller recently told me, “My house is the most well-built one on the block” (the same builder built the entire tract). Another seller said, “My house is really unique for the neighborhood, which is why it’s worth so much more” (it was totally outdated though). Agents are trying to tell these sellers to price lower because that’s where the market is, but both these homes are likely going to be overpriced because the sellers cannot get past their own subjective views.
8) Be FHA-ready: One in four homes in Sacramento county sold with an FHA loan last year, so it’s a good idea to have your home ready for an FHA appraiser if you think your home might go FHA. Your agent can most likely bring you up to speed on some repairs that might be required or maybe look over an FHA list. Keep in mind 34% of all homes under $300,000 went FHA in 2016 in Sacramento County and the current FHA loan limit is $474,950. This is also a reminder that financed offers are closing escrow and actually far outweighing cash transactions.
9) The market isn’t the same at every price range: We like to think the market is doing the same thing in every price range and neighborhood, but that’s not true. For instance, the market under $300,000 is more aggressive than the market above $1.5M. Thus the market could be “hot” in one price range or neighborhood and cool in another. This is important to remember because all day long we read about how hot the market is in Midtown and how rents are rising there, but that same dynamic might not be present in your neighborhood.
10) Listen to your agent: In a market that feels aggressive it’s easy to ignore pricing advice from agents, so some sellers price at completely unrealistic levels. Despite values showing upward pressure in many price ranges, we are not in a market where you can command whatever price you want (even with anemic inventory). So if your agent is telling you where the market is and showing you similar sales and listings, ask yourself why you are not listening.
I hope this was helpful.
Sincerely,
Ryan
Questions: What piece of advice resonates with you? What is #11? Did I miss something? I’d love to hear your take.
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Another great read Ryan, thank you.
Thank you very much Stephen.
Ryan,
This is excellent and so well explained. Great job as usual.
DeeDee
Thanks DeeDee. 🙂
Great article, once again. All points hit the nail on the head.
Sellers often worry that if they price their property too low, they will leave money on the table by not asking for a high enough price. They tend to think that they should ask for higher than they expect and negotiate down, as if they were selling a used car on Craigslist.
But that is a BIG mistake. Buyers today can be sitting outside your house in their car and quickly pull up every single sale in the area right there on their phone. So if you’re priced way too high, they’ll immediately know it, and pass on to look at a house that’s more reasonably priced. Buyers didn’t have such ease of access to information in the 80’s and 90’s as they do now.
In today’s market you can generally expect multiple offers, and that will raise the price to market value (what the market is willing to pay for a property) no matter what price you list it at.
I was just involved in submitting an offer for a property in Elk Grove that was grossly under-priced. I knew it, the listing agent knew it, and so did everyone else. They were asking $295k and the property was easily worth $350k. Had a comp right down the street that had sold the previous month.
So, we submitted an offer for $55k over the asking price. Because we knew that’s what the property was worth and what we’d have to come in at to be competitive.
I also just had another listing that had previously been listed for 7 months at $249k and never received an offer. I took some better pictures, marketed the property locally, and had 5 offers in 5 days all above asking price, which was $235k. The offer we chose was $245k, so it’s like they were grossly overpriced the first time either.
As a seller, you have to ask yourself “Would I rather overprice the property by $14,000 and sit on the market for months and not get an offer? Or price it reasonably and sell it in a week for $4,000 less?” The answer is obvious 🙂
Fantastic stuff Wes. Thank you. We are indeed in a very price sensitive market. Pricing too high will mean a property sits instead of sells. It’s just not worth it. Statistics show properties that stay on the market longer tend to sell for a lower percentage than their original list price too. In other words, sellers lose the power to bargain the longer a property sits.
I saw a property like that in Elk Grove recently I wonder if it was the same one. 🙂
Great example of the power of photos and proper marketing. Killer job.
Great post, Ryan. I agree. #7 resonates with me the most – Where I see this happening a lot is when people have been in their homes for 30-50 years and they haven’t updated in awhile or at all. The sellers believe that there home is desirable because they had the latest updates 30-50 years ago and they can’t understand that buyers don’t want homes with features that were important back then. One woman I talked to was in pre-foreclosure stages and had she listened to me, I could have gotten the home sold for a price that was much less than what she wanted but she would have walked with a decent profit. As it turned out, she lost the home to foreclosure because she listed it too high with another agent and it never sold. The others just end up selling for less than market value because they started too high and buyers want a deal.
Thank you Jane. I think you hit the nail on the head with the example. A home that was remodeled 30-50 years ago is no longer remodeled. Even a kitchen that was remodeled 15-20 years ago is outdated now. We might technically be able to say the kitchen is remodeled, but the truth is a buyer is probably going to want to change the kitchen (counters would be solid surface instead of tile and those golden oak cabinets of yesteryear would be replaced or painted).
Ryan, I am glad you included #9. This is something many people don’t think about. Just because one price range is hot does not mean they all are. This is why it is very important to get a good agent or a pre-listing appraisal to make sure the home is priced to the market.
Thank you Tom. I appreciate your insight. I just shared a stat this morning that actually that goes along with your point. The 2-4 unit market in Midtown is “on fire” so to speak. Prices are definitely back to where they were at the peak of the market in 2005. Yet the surrounding 2-4 unit market is not back to those prices at all. Midtown is a bit of an anomaly because of all that is happening there. Thus if we weren’t careful we could say something like, “The 2-4 unit market everywhere has reached the previous peak”, but that’s absolutely not true.
Excellent, I’m adding this to my listing presentation!
Wonderful. Thanks Debbie.
Excellent advice that sellers should read and understand. It’s those who can’t separate the emotion from the business that have difficulty with these.
Thanks Gabe. I really appreciate it. I like how you said that. It’s so key to separate emotion from the deal.
Great Advise explained very well! I am excited about your upcoming class how to think like and appraiser.
Thank you so much Sandra. And I’m excited you’re coming. Thank you. 🙂