What’s a Home Worth?
The buyers are coming, the buyers coming! Why do I feel like Paul Revere on his famous midnight ride? We have spent a great deal of time in the field with our buyer clients over the last three weeks. With all this renewed activity, I had a couple of observations. First of all, I don’t think the sellers were prepared for this type of bump in activity so early in the year. Of course, this is what we were hoping for and the trends suggested as much. The rates continue to hover in the mid to high-4% range, and buyers are hard pressed for a better time to buy than right now. We have had several clients here recently that are renting their primary residence so that they can take advantage of the opportunities in this market. After meeting with these clients, we have a clear cut strategy to help them achieve their goals in a short window. I think, no matter the market, every buyer wants to feel good about getting a good deal on their home purchase. Now that I’m in the business, I have a little different take on what value is and how I, as a buyer myself, determine it. It’s not all about getting a seller to come off the purchase price at a ridiculous percentage. It’s about getting the best house that meets specific needs at the best price possible – that’s value to me.
Part of our fiduciary responsibility as real estate agents is to provide accurate and helpful data that aids our clients in making sound business decisions so we can market homes to sell and find values for our buyers. A lot of sellers think that a real estate agent’s interpretation of the market, as it relates to a list price, is a determination of value. No, that’s an appraiser’s job. It’s a tough position to be in right now as a real estate agent. Sellers look at you like you have a third eye when you simply report the news. We are empathetic with our sellers, but we wouldn’t be doing our job if we were anything shy of honest. When we list a house, we are not listing it at it’s value neccessarily; the buyer determines the value. We are listing it at the best marketable price to attract a buyer and ultimately an offer. That’s our job. As mentioned here before when Lesley and I list a home, we list it to sell. We aren’t in the business of listing houses. We’re in the business of selling houses. As a general rule when pricing, we try and find that “worry price.” I wish I could take credit for that term, but we picked it up from our broker. Nevertheless, it’s an accurate strategy that I wish every agent proclaimed and every seller subscribed to. Here’s how it works. Buyers today are not just looking at 3 homes and making a decision. They’re looking at 15+ houses and making a decision. Therefore, it’s important to be the prettiest and most competitively priced. You’re looking for that price that a buyer walks into your home, loving it, loving it, loving it, and then worrying that its not going to last long at this price. When I look back on my own personal real estate purchases, I followed a similar logic. It’s where emotional attachment meets reality.
When trying to evaluate value in a home, we think it’s important to take into consideration everything you have looked at. In a buyer’s market, you have to rely more on the active listings as competition when pricing as a seller and determining value as a buyer. The ultimate principle at work here is that the home is worth what you think it’s worth, but just be careful with that. The story about your buddy getting a home at 85% of list was about 4 months ago. Those kind of deals just are not out there as much anymore in the resale market because prices have been falling, and agents have been busy adjusting. Even on the foreclosures and short sales, banks are pricing properties to sell, and you won’t find them coming significantly off their prices. If they don’t sell within a short period of time, the prices are adjusted lower. If you are fortunate enough to get a home at 85% of list price right now, the home was most likely overpriced and/or the owner was probably already considering a 5%+ reduction before your offer came along. The latest figures from the fourth quarter of last year suggest that 53% of all homes on the market required a price reduction. That says two things to me. First, as professional real estate agents ALL OF US have done a lousy job pricing property, and secondly, this market has changed enough that it has thrown everyone off.
So, where does that leave us? Values are down, sure, but let’s all think twice about that lowball offer on the prettiest and most competitively priced listing that you are so worried someone else is going to grab. The worry price works with pricing property for listings, and chances are good that if you, as a buyer, like something out there because you think it’s a good deal, someone else thinks its a good deal too. Move on it if all things add up because it won’t last long. Always keep in mind that the best opportunities sell first and sell for the most money.
