As mentioned in our January newsletter, last year was, by far, the best market for those interested in selling their homes since before the recession. It was the first time since 2008 that I was able to look over my shoulder and not see any of the vestiges that had befallen the real estate industry years ago. What made 2015 particularly remarkable for sellers was that most properties were selling immediately, and for top dollar! This is exactly what a prospective seller wants to hear when they’re considering putting their home on the market.
With that being said, another, less fortunate subset of properties remained on the market for sale for four to six months last year. Eventually, they sold below their market value. So, what were the characteristics of those properties that fell into the latter category?
#1 – The home needed too much work. Simply put, most buyers weren’t interested in investing time, effort, or money into homes that required an excessive amount of repair and renovation.
#2 – The home was overpriced. As elaborated in an earlier blog, Rochester buyers are conditioned to expect consummating a deal at 2-5% below the list price. They will walk away from a home that they love if the list price isn’t reflective of accurate valuation.
In this day and age, buyers have too many real estate databases to access online (Pinterest fans, I’m talking to you!) and too many shows on HGTV (Fixer Upper, anyone?) to educate them. As a result, we have a consumer class of amateur real estate experts who understand valuation in a way that previous generations never could. These buyers recognize when a property is overpriced, and aren't interested in overpaying. Instead, they are simply going to wait for the price to drop or for another comparable home to come on the market around the corner.
After a month on the market, if a property hasn't sold, most sellers – the successful ones – will lower the price to reflect what it is that market forces are telling them. More often than not, if this price reduction is reflective of the true value of the property, the house will actually sell. However, problems arise when, either through hubris ignorance or stubbornness, sellers refuse to drop the price or refuse to drop the price enough to reflect what it is that the market is telling them. These are the folks who get themselves into trouble. Ultimately, after several months on the market with a price reduction, the property becomes stale and sellers find themselves in the dangerous predicament of chasing the market downward. In other words, they've waited so long that, when they finally do get around to lowering the price, market forces and psychology have conspired in a way that decreases the value of the property below that which it should have originally sold for.
After chasing the market downward over several months, the property becomes such a bargain for the buyers that it finally does sell. However, it often sells upwards of 10% below that which it should have sold for if a greater dose of realism had been exercised at the outset. Avoid finding yourself in the subset of sellers that haven’t reaped the benefits of the post-recession market by pricing your property realistically, and adjusting the price appropriately!