PRICING for SELLERS

It was not my intent, but most of my articles have been geared to buyers or investors. This post, however, I specifically wanted to gear towards sellers. It is a sensitive subject, but pricing a property, which I am listing, is more important than any marketing I can do, or any service I can provide as a Realtor®/Listing Agent.

Yes, I can do outrageous marketing, but if the property isn't priced correctly, it won't show much, and it won't sell. The bells, whistles, photos, web marketing, print marketing, and videos won't really help anything. It is a difficult sometimes to explain this fact. I can present every comparable property, and still not penetrate what someone's idea of the price of their property should be.

I am talking on this subject with a broad brush, because there are those sellers, who are exceptions to this idea, and who are very realistic. Sometimes, there are those who need an upward adjustment, because they have not been paying attention to where housing prices have gone. However, the difficulty, is not with these properties and sellers, but with the over priced listings/properties and sellers.

So, looking for advice from other Realtors®, I put the word out on FACEBOOK and asked what they say to sellers, when the sellers are unrealistic about pricing their properties. I thought it might be helpful to hear opinions and statements from other Realtors®, in different places in the country, both for myself and for people either selling their property or thinking about selling their property. I received various responses, but they all shared a similar idea, expressed in different ways, and perhaps, hitting different points, as follows:

• Terri Gilgour of Keller Williams Realty, Blue Springs, MO said, "We put the ball in their court and make them figure out how important it is to actually sell it."
• Marcile Warren Sims of Oracle Real Estate LLC, Mobile, AL said, "Let them know that they have to get an appraisal once the offer comes in and it may not appraise and then there will be problems. If they still insist, ask them to have an appraisal done before listing it and that may answer their questions."
• Al Perry of Century 21 Advantage Gold, Philadelphia, PA said, "Given the other options on the market, would you buy your house at this price if you were a buyer?"
• Jude Birch of RE/MAX International, Louisville, KY said, "...RE/MAX Regional Awards this week with David Knox on pricing - he was his usual upbeat self but attacked the changing dreadful market both of us face. He took us through the SELL or STAY thinking he uses all the time...."
• Brian Bundesen, Ann Arbor, Michigan said, "Obviously, you have to be armed with the comparables. You need to be clear as to how an Appraiser will look at the property. Explain that even if you find a buyer willing to pay the sellers price, the house is unlikely to appraise at that price, and the buyer will be unable to secure financing. Then ask the seller what they would do if they were the lender faced with those facts."
• Eric Bouler, New Orleans, LA said, "You are basically unrealistic in your price. It's like selling a 50 cent coke on a cold day for a buck. You will get few buyers. You are hiring me to be an honest broker for you."
• Todd Holloway, Michigan City, IN said, "The question is do they want to sell now? Or are they waiting to realize a preconceive number? If that is the case can you afford to hold on?"

Thus, if there is someone, out there, reading this post, who is thinking about selling their property, what am I and these other Realtors® saying to you? To start, Al Perry is asking if you would pay "your price" for "your property". I think that that is a great questions. Would you? What is your answer? What would you pay for your property?

The other questions and statements are just as relevant. They hit a pretty simple theme:

• How are the comparable properties priced? And what is their condition compared to your property's condition?
  
• Do you want to sell or stay?
• Can you afford not to sell?
• Are you willing to take the risk, if you are lucky enough to get your property under contract, that the property will not appraise?

All of us, Realtors®, want to sell property; that is what we do for a living. If it does not sell, we don't make a living. However, we want to sell it for the best price. It is in our self interest to get the best price as well as your best interest. Therefore, if you are thinking of selling, and seem to disagree with your Realtor®, call another Realtor®, and have them do a CMA (comparable market analysis) for you. If the second or third Realtor®, tells you the same thing, then chances are the price in your head is in excess of where the property should sell. If you still doubt what you are being told, then do what Marcile Warren Sims above suggested, and get an appraisal.

Over Improving Your House

I can only say, your home or house, whether it is a single family or condominium, is not an investment. However, you must consider which improvements are worth doing and which are not. Your home is the place, where you live, whether you rent or buy. Now, you should only spend what you can afford on your home, but there are things you may put into your home that you would not put into an investment property, because you want whatever it is to enjoy your lifestyle more fully. It may be something like a spa tub. You may not recoup the cost of that tub when you sell the property, but your quality of life is so improved that it is worth the expenditure while you are in the house, but do not consider it an investment, but rather a luxury. And don't expect that it will increase your property value by the amount you spent or any at all.

I had a buyer look at a very pretty jacuzzi and say that would be an expensive sweater dryer for her. Some of these things, which you may think add great value, will not for the next buyer of the home. The spa tubs are a perfect example, because some people love them and others hate them. Unless, you are investing in very high end properties, you probably would not include something like a spa tub for a tenant, because of the cost, maintenance and propensity to have more problems than a regular tub. Would you make enough in rent to cover the cost of installation, maintenance and possibly replacement? Probably not and you would therefore not install it.

You must be careful not to over improve your home unless the expenditure absolutely does not matter, and you are prepared to take a loss when you go to sell the property. For example, if you have a two story row house with no parking in a neighborhood where the most expensive houses are selling for say $200,000.00 and all two story houses, and you put a $60,000.00 or more third floor on it, and you plan to leave the house in the next few years. Was the money well spent? Probably not. However, if you put central air, new plumbing, new electric, new roof, new doors, new windows, is it money well spent? The answer is usually yes; these items add value. If you go into a poor neighborhood, however, it may be hard to recoup the cost of something like central air.

If you go to my previous blog on COMPS or COMPARABLE PROPERTIES, you will gain an understanding of how a Realtor, or Appraiser for that matter, determine at what "price" a property should sell. What a Realtor or Appraiser is looking for, however, is a comparable property that is similar in size, close in proximity and has sold, hopefully, in the last six months. Thus, if you put a third story on the property, there may be no comps and no market for it. I am not saying no one will buy it, but if the price you need to get to come out even or even ahead is so great that your prospective buyer could buy in a better neighborhood and perhaps get something like a garage or parking, which your property does not have, they are likely to go for the better neighborhood.

Last year, I ran comparables for a property in the neighborhood, where my office is, which is the area South of Oregon Avenue, North of the Expressway, and West of Broad Street. Most of the Properties will sell close to $200k and up to perhaps $270K. There are a few along Broad Street and Marconi Plaza Park, which sell for more. The ones that sell for more have parking and many have been improved to be very high end properties. They tend to be larger and have a view of the Park.

At $270K in the properties not on Broad Street or the park, what do you get? Well, new everything plus hardwood floors, granite counter tops, finished basement, new windows and doors, 3 bedrooms, at least one bath, but more likely 1-1/2, a finished basement, high end appliances, new front, etc.. The subject property was originally, a three bedroom. The middle room, however, was reduced in size to accommodate the enlargement of the bathroom. The bathroom was definitely the nicest room in the house done in beautiful Italian Marble. The middle room was now reduced to a small office or storage; you definitely could not put a bed in the room. There was a third floor added and made into a large bedroom. The plumbing was run for another bathroom, but not built. There was a small deck off the back with a view of Center City. All of the mechanicals, window, doors, etc. were newer and good quality. The kitchen was newer, nice, but not as modern as what is currently selling as modern. The rest of the house was okay. It was very clean, well maintained, but rather vanilla. It was decorated to the owner's taste, but not to the taste of what is selling as "modern". Anyone looking at the house would want to decorate. They would probably want to further update the kitchen and put down hardwood floors. If you are spending $270K on a house in that neighborhood, you should get hardwood floors.

Now, I thought they could stretch and perhaps get the $270K, but they wanted $325K. Now, when you get into the $325K range, you can buy a bigger house, a better address, and perhaps parking. At $350k, there are a lot of choices. If I had taken this same house with decorating problems and put it off Fitler Square, it probably could bring a price between $500K-$600K, but not in this location. In this location, South Philly, there are a lot of other choices over $300K.

The moral of the story is that they "over improved their house". They were very insulted by my price. They did not give me the listing. The gave it to another office. The house did not sell. It ultimately, had a FOR SALE BY OWNER sign on it. I haven't followed through to see if they eventually sold it and for what price. But I tend to think that the house did not sell.

The irony, in all of this pricing of this property, was that they wanted to move to a larger, two story house with a grass yard, and parking in Packer Park that was listed for about $350,000. The difference in a 30 year, fixed rate mortgage at 7%, if fully financed between $325K and $350K is $2164 versus $2330. In this price range, it is not truly a big difference. Parking alone is enough to justify the price difference. Which house would you buy?