z
i turn REALTY into REALiTY

Dear Mr & Mrs. Seller: We Love Your Home But…

seller

Why Buyers (and Realtors) Love REOs

Let’s face it, there are a lot of homes for sale right now.  It seems you can’t drive down the street in most neighborhoods without seeing a For Sale sign.  In Woodinville, WA the city that I live, there are 229 homes for sale (208 homes, 21 condos).  Of those homes available, 12 are bank owned properties (5% of the market).  Contrast that with the number of homes currently under contract (99 homes PENDing), of which 18 are bank owned.

Why do REOs sell quicker than other homes? If you ask the general public, they would answer “Because they sell for less than market value!” My answer would be “Because they are priced appropriately for the market, based on the current conditions”.  If you read my answer carefully, you’ll notice that there are distinct differences between the two statements, but those differences can dictate whether you stay or go.

What Is Market Value?

Anybody can type the question above into their Google search bar and come up with several definitions, but I think this definition is pretty accurate:

Market Value – The price that a seller of real property can expect to receive from a buyer in a fair and open negotiation. In tumultuous markets, market value can fluctuate dramatically, and the reality in the end is that the true market value is determined by what a buyer is willing to pay for it.

But aren’t all homes priced at market value?

The quick answer is NO! In fact, most homes are slightly over-priced as evidenced by the number of price reductions I see on a daily basis. However, most sellers don’t consciously set out to over-price their homes.  There are a number of reason why it occurs:

  • Bad comps
  • Seller’s emotional attachment to the home
  • Bad agent
  • Seller’s emotional attachment to the home

Yes, I did write that twice…

Why Your Home Isn’t Selling (Hint: $$)

Bad Comps – If you’re trying to price your home based on what other homes are selling for, you better be sure that those homes are truly comparable! Comparing a Quadrant home to a Buchan home down the street doesn’t work, and buyers will be quick to see the quality differences. There are many factors that should be taken into consideration when deciding how “comparable” a home is to yours such as location, condition, size, quality, room count and so much more.

I like to play the “Guess my price” game with seller clients before I list their home.  I take them to see homes that I believe are comparable to theirs and let them guess the asking price.  Oftentimes, they are surprised when they find out that the comparable home is priced much less than what they expected.

Seller’s emotional attachment to the home – As homeowners, we often view our own home through rose colored glasses. In fact, there may actually be little pink roses on the wallpaper throughout your home that you had hung 20 years ago when you last remodeled. However, beauty is in the eye of the beholder and in reality, may not add value to your home (in fact, it might deduct it).  Also, those little cabinet pulls that look like birds might have sentimental value to you, but not much in terms of dollar value to the next buyer.

That’s why I often suggest that potential seller clients watch HGTV shows like Designed to Sell and Get It Sold for ideas. When it comes time to sell your home, you have to divorce yourself from it emotionally and start looking at it through buyers’ eyes.

Bad Agents – I would like to believe that every real estate agent is a true professional and has the knowledge and experience with which to properly counsel their clients.  The unfortunate truth is that there are some agents who, in conjunction with bad comps and emotionally attached clients, make bad pricing recommendations.  I’ve met with clients who were unsuccessful in selling their homes with previous agents, simply because the agent over-priced the home (based on the home’s condition), and the sellers just went along with the agent’s recommendations.  A strong, professional agent will have the knowledge and experience to recommend a price range that is appropriate for the home’s condition and other salient features, and take into consideration the seller’s time frame for selling.

Seller’s emotional attachment to the home – I feel so strongly about this point that I’m mentioning it again. Remember that you, the seller, are the client.  You have the final decision on everything that happens with regard to your home.  Real estate agents are nothing more than guidance counselors. I’ll probably take some flack for what I’m about to write here, but if just one seller reads this and takes it to heart, then I will have been successful in conveying my message.

You, the seller, are responsible for the long market times that are causing the delay in the housing recovery.

Let me explain what I mean.

  • Homes that are overpriced stay on the market longer
  • Homes that have longer market times sell for less than homes properly priced at the start
  • New homes that come into the market after your home sells, use your valuation in their pricing decision (snowball effect)
  • There is a huge inventory of REO properties that banks are holding back because they don’t want to flood the market
  • Until the REO inventory is reduced, the housing crisis will continue

This is an oversimplification of the situation, but I think you get the point.

Why Buyers (and Agents) Love REOs

REOBuying a home can be a very emotional process, and depending on the situation it can be positive or negative.  Sometimes, working with a buyer can be a challenge just getting to a decision point (e.g. buyer needs, where to look, etc.).  Whoever said “Getting there is only half the battle” is so correct! Negotiating the deal is the other half.  That’s why buyers and agents love dealing with the banks on REO properties.  The reasons, in no particular order are:

  • Banks have no emotional attachment to the home.  For them, this is just another house that they want to get off their books.  They don’t care about the pretty wallpaper or fancy tromp l’oeil that is in the home.
  • When presenting an offer on an REO, the bank doesn’t get emotional and change their minds halfway through the process.  They don’t take offense to the buyer’s agent when he/she presents a lower than expected offer and storm out of the room (or throw things at the agent i.e. shooting the messenger).
  • Banks understand that market value is NOTWhat the seller needs”, but rather what the market says the home is worth given comparable choices from which to choose.
  • Banks require the listing agent to provide them with complete and ongoing BPOs (Broker Price Opinions) so that they continue to be priced for the market.  In other words, the banks continually update their list price based on the continually changing market conditions (at least monthly, but generally more frequently).  Contrast that to homeowners who often stay firm on their list price for 3 or more months before even considering a price reduction.

That last point is what makes it especially difficult when presenting offers to some sellers. For that, I’ll place the blame on the real estate agent who may have been unwilling (or too scared) to speak with the client on an ongoing basis regarding the changing market conditions and possible need for a price reduction.  The result of this is that the seller is caught off guard when presented with a lower offer than what they were expecting, thus leading to broken glass across the room.

In Conclusion…

So, Mr & Mrs Seller, if you want to endear yourself to more potential buyers and agents, take this blog post to heart.  Don’t take offense if we (agents) suggest changes to your home, or suggest a list price lower than what you “need”.  It’s not personal.  We are just doing our job.

What are your thoughts? Do you disagree with my thoughts? Have you ever purchased a home with tromp l’oeil and painted over it?  Leave a comment and let us know…

When REALiTY BiTES, bite back!

Tags: , ,

Leave a Reply