Everyone knows it’s a buyer’s market today. Low prices and interest rates, while not stimulating the housing market as much as expected, have created a glut of home deals out there. This naturally means that active buyers have their pick of the litter when shopping for a home. The flip side is that sellers not only have to go over the top in attracting those buyers, but they also need to view all the other active homes that compare to theirs as the competition. Market efficiency will ultimately determine the value of your home.
And that is the point of this post. It’s too easy sometimes when selling a house to mistakenly assure ourselves of the worth or value of that property. Either we’ve run our own comps or a realtor has done their own CMA (comparative market analysis) and come up with a number (or range). That number, quite often, can be dangerous if it’s not viewed in the proper context. That number — its “as is” value — is merely a calculation, a gauge of what the market seems to say your house, in its current condition and location with its current layout and features, is worth TODAY.
But it’s not selling at that price….
However, what if you’ve been trying to sell your house at that very same number for 60 days and it hasn’t sold? Let’s look at a single family house in Honolulu with the following features: 1300sqft living space, 6000sqft lot, 3 bedrooms, 2 bathrooms, recently remodeled and a two-car carport. Let’s say the CMA calculation says this house should sell in 30 days for $550,000 but you’ve had it listed for that amount for the past 2 months with little interest?
It could mean one or more of the following:
- The remodel did not fit what people seek or is selling in your neighborhood
- Your neighborhood is not ‘hot’ right now
- There are still structural issues or non-permitted improvements that are dissuading buyers
- Your house is not being marketed properly
- You are asking too much
Of course, that’s not an exhaustive list and doesn’t even include if the property is a short sale which is often enough reason for a buyer to look elsewhere, but you get the idea. If your house isn’t being marketed properly, then discuss with your realtor what else can be done or consider changing agents (if you need a recommendation or referral, please let me know). However, that’s just theoretical and I want to focus on the last item — asking too much.
If you list your property for more than it’s “worth”, knowingly or unknowingly, you’re wasting your time today. Unless your property has some unique selling sizzle feature that really sets it apart, then a buyer with today’s options won’t see a reason to pay what you’re asking for. However, while the median single family home days on market has been hovering in the low to mid 30’s lately, there are still plenty of examples of homes that sit on the MLS for 60 to 90 days or more.
Now why would someone ‘overlist’ their property and ask too much? Let’s again outline some reasons:
- They (or their agent) did not run a proper CMA calculation
- They’re just ‘kicking the tires’ of the market
- They WANT to get that amount
- They NEED to get that amount
The last two are the ones that are disconcerting because…
….wanting or needing a certain net amount from the sale of a house has NOTHING to do with its current value!
Some of it has to do with emotional attachment (“but my house is so much better”). Hint: take emotion out of a home sale — it adds no value for buyers. Yes, as crazy as it sounds, being cold and heartless may actually help you sell your house! Sometimes the seller is just not up to speed on today’s market activity. However, the real kicker is that sellers will often cling to that CMA number or original listing amount; they feel that the market must see this value in their home and will ultimately come around and vindicate their insistence on that amount: “But I just know my house is worth $600,000. I just know it.”
And they could be right. There is, admittedly, an element of luck involved as you might just need the right buyer to enter the market at the right time for you to sell.
But buying and selling a house is, with obvious differences, very much like buying and selling anything else in a capitalist economy:
An item is only worth what someone else will pay for it.
That’s the ultimate guiding principle that will never go away. It defines a free market economy. You have a right to ask however much you want for a house. And Mr. Buyer has every right to say he will only pay so much for it. Unless the two come together, there won’t be a sale. But it’s the BUYERS who mostly determine what an item is worth. How? By doing what buyers do — buying. A purchase is a vote, a vote that a type of house is worth $X. And that number is more important than a CMA (though the latter should be based on the former).
So it’s perfectly understandable to want to sell a house for what your guts might be saying the house is worth, but no one speaks more loudly than the market when it comes to gauging value. Accepting this is the #1 key to selling your house today. If it’s not the right time or you don’t need to sell your house today, then by all means consider waiting if you believe the market will rebound. While the voice of the market may determine the value of your home, it’s still your decision how to respond.
And that is a discussion for another day.