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overpriced listings

An open letter to sellers about pricing during a slower real estate market

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Dear Sellers,

How are things? I hope all is well. I wanted to reach out and and pitch some thoughts your way about listing your property in a real estate market that is cooling off. I’m not trying to tell you what to do, but I figured this might give you some helpful context or conversation fodder with your agent. Here goes.

  1. Image purchased at 123rf dot com and used with permission - 14688774_s - smallerBe aware of change: Real estate markets are constantly changing. There are times when values increase and other times when they are flat or decline. This means it’s important to price according to how the market is behaving. Yes, values increased rapidly in recent years, but we’re not in that sort of market any longer. Moreover, the real estate market is cyclical where buyers tend to pay more in the Spring and less in the Fall/Winter.
  2. Know your competition: Price according to the most recent similar listings that are actually getting into contract instead of the highest sales from several months back. Remember that well-priced listings tell us about the current market whereas sales are more like pieces of history because they represent what the market used to be like in the past when these properties got into contract. The bottom line is if you want to sell, you need to be priced in the sweet spot where buyers are currently willing to pay. You can find that sweet spot by looking at sales, but don’t forget to give strong weight to similar actives and pendings.
  3. Be prepared for credits: It’s becoming normal for buyers to ask sellers for credits for repairs or even credits to assist with closing costs. This doesn’t happen in every price range, but it does tend to become more common when a real estate market softens.
  4. Listen to your agent: If your real estate agent keeps telling you the property is overpriced, is there a good reason why you are not listening? Your property might be incredible, but if it’s not generating interest or offers, something is wrong. What is it?
  5. Overpayment expectation: Don’t count on pricing your property really high in hopes of attracting that one magical cash buyer willing to pay extraordinarily more than anyone else. We are no longer in a market where buyers have to overpay since housing inventory is approaching normal levels.

I hope this was helpful. I’m around in case you have further questions or a story to share in the comments below.

Sincerely,

Ryan Lundquist
CA Certified Appraiser
Sacramento Appraisal Blog

p.s. Remember to pick up the dog mess before the appraiser comes  🙂

an open letter to sellers from sacramento appraisal blog - image purchased and used with permission

NOTE: This information was written in response to many overpriced listings in the Sacramento area. Your market may or may not be similar. Be sure to study the trends in your market so you can price accordingly.

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Can appraisers use listings too or just sales?

By 6 Comments

One of the biggest complaints I hear and read about is that appraisers are only using the most recent sales instead of current listings. The thought is since the market is increasing, appraisers end up low-balling every appraisal because they don’t really (or cannot) use listings. Is that how it works?

listings vs sales in appraisals - by sacramento appraisal blog

Listings Show the Direction of the Market: First off, listings are important for any real estate market because they can help illustrate the trend of values. When listings are lower than the most recent sales, it probably indicates the market is declining, while higher listings show the market is likely increasing. If listings are priced similarly to recent sales, it shows values are probably stable. This is a basic real estate principle, but let’s be honest that sometimes appraisers clearly misinterpret this phenomenon. At the same time there are also many cases where properties are simply priced too high for the market. Maybe the owner or agent was too aggressive or didn’t pay close enough attention to neighborhood trends. Or maybe an investor picked the wrong “comps” when trying to flip a house. I’m not looking for a pity party for appraisers who got it wrong by any means, but let’s be realistic about other parties missing the market by incorrectly pricing a listing.

A Date of Sale Adjustment: Contrary to some opinions out there about appraisers NOT being able to consider listings, appraisers have what is called a Date of Sale adjustment which allows them to adjust for any value difference that has occurred since the comparable sales went into contract. For instance, if all listings are higher than the most recent sales and other metrics also show the market is increasing, appraisers can give an adjustment to each comparable based on how much the market has increased since the CONTRACT DATE (not the close of escrow) for each respective comparable sale. In short, it is a myth in real estate to believe appraisers cannot use current listings in a valuation. That’s simply not true.

date-of-sale-adjustment-by-Sacramento-Appraisal-Blog-2

Of course the real question is whether appraisers are giving these adjustments or not. This one “Date of Sale” adjustment or lack thereof can be the X-factor in an appraisal being accurate or not. If you feel the appraiser did not give an adjustment, you should dispute the appraisal and ask the appraiser in writing to explain why this adjustment was not given. You may want to ask why a Date of Sale adjustment was not given to comparable sales when listings seem to be priced higher. While you’re at it, make sure to review the appraisal and look for the most important things that really impact value.

Question: Any questions, stories or thoughts to share? Feel free to comment below.

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