In April, I
got a call from a past client.
“I was
working in my yard,” he said, “and the neighbor behind us said he was thinking
about selling his house. I told him he should
talk to you.”
At the time,
I had a buyer client with serious interest in this same neighborhood and so I
took the initiative, first writing a letter introducing myself and then
following up by dropping a comprehensive marketing package on his front porch a
few days later.
“I may have
a buyer with serious interest in your home,” I wrote. “But whether it’s the right fit for my client
or not, I would be happy to sit down and help you assess your options.”
That
weekend, I ended up getting together with this prospective seller, and we spent
nearly two hours talking through the market, the process of preparing a home
for sale, and how his home matched up with others in the neighborhood.
“I have a
lot of stuff and don’t really want to go through all the work of getting my
home ready for market,” he said. “I
would be interested in selling to your buyer if the terms were right, and if he
would give me time to get moved out after closing.”
We talked
about a potential sales price of $290k - $293k, which was an honest
interpretation of market value. In fact,
it was a generous interpretation of market value, because in my preparations
for the meeting, I had discovered that the seller took out a new loan for
$218,400 just four months earlier.
Using basic math skills, I reverse-engineered that number and determined that his home had
likely appraised for $273k at the time, since $218,400 is 80% of that
number. I asked him if that was the
case, and he confirmed for me that the home had appraised for $273,000.
“So if I
could get you $20,000 more than your home appraised for four months ago, you would
consider that fair?”, I asked. He nodded
and said yes.
Every piece
of real estate is different, and there is always a subjective component to
value. Truth is, this was a very middle
of the road house in terms of condition.
While it had good square footage, the shag carpet was from the 80s, the
paint was from the 90s the last time it was deep cleaned was around the turn of
the century.
The seller
was a bachelor, which was part of the reason he was ready to downsize into
something that required less maintenance.
I brought my
clients through to see it a few days later, and while they liked the location
and the square footage, they also saw it needed updating.
“We would
have to spend $20k just to get the kitchen updated,” they said. “It’s a nice house, but we just can’t pay
$290k for it.”
With that,
the negotiations broke down, and my buyers went back to pounding the pavement
and the seller pulled back to assess his options.
Not long ago, that home finally showed up on the market with another agent… listed at
$310,000. That’s 13% over an appraisal which is less than six months old. That’s
6% over my ceiling for the home from 30 days ago. In short, it’s not a supportable price. No appraiser will be able to get there, and
anyone who offers that much is simply not doing their homework.
Stories like
this are a bit demoralizing, not only because I worked hard to try and fairly
piece a deal together, but because I hate it when greed becomes the focal point in pricing a home.
His home isn’t
worth $310,000, and the agent who listed it knows it.
Yet I see
more and more of this all the time, homes priced at numbers that are just not
realistic. Yes, if you have a
spectacular home in a great neighborhood in impeccable condition, you can break
through the neighborhood’s value ceiling and get a shelf-topping offer.
But when
people offer ordinary homes at top shelf prices, eventually buyers figure it
out. And they vote with their feet as
they walk right back out the front door and mentally erase your home from their
mind.
When this
market slows down – and it will slow down – it won’t be because we ran out of
buyers or because the economy turned. It
will be because sellers (and agents) let greed get the best of them.
