The difference between success and sitting on the market with fewer showings and no purchase offers is price.
Everybody is well aware of the incredible run that the Orange County housing market has enjoyed for nearly five years
now. The press has reported on the record median sales price. REALTORS® have distributed lists of recent
neighborhood sales that provide proof that property values are way up from just a few years ago. Common knowledge is
that multiple offers is the norm and that there is a limited supply of homes on the market.
As a result, sellers are inclined to get carried away with pricing. This dilemma occurs in every single price range, even the hottest ranges, homes and condominiums priced below $750,000. Just because a price point is considered “hot” does not mean that a buyer is willing to pay thousands more than the most recent comparable sale. Buyers are not looking to overpay for a property. On the contrary, they are very price sensitive and are inclined to pay at or extremely close to a property’s Fair Market Value.
How does a homeowner determine a home’s Fair Market Value? It’s no different than how an appraiser determines the value of a home. It boils down to carefully selecting similarly sized, recent comparable sales and then adjusting the value based upon the condition, upgrades, amenities, location, and lot size. A huge challenge for sellers is to pull the emotion out of the process and look at all of the data objectively. This is no small task. Sellers are emotionally invested in a home. They have poured their own personal touches and money into their asset. And, it is not just an “asset,” it is their “home.” It is where their kids learned to ride their bikes, where the doorjamb was used as a growth chart, where memories were forged for years. It almost feels like there should be a value for all of the emotions we feel towards our homes. Unfortunately, that’s just now how it works.
Condition is one of the most crucial elements in determining a home’s value. It starts out with curb appeal, as a potential buyer pulls up and walks to the front door. Then, while the buyer waits for the REALTOR® to provide access, it’s the front door appeal. If a home’s landscaping is overgrown and the front door has cobwebs and needs a few good coats of paint, there are already a couple of obstacles to landing an offer AND the buyer has not even seen the inside. Soiled carpet, scuffed paint, non-neutral colors, cracked tiles, vinyl flooring, and water stained, peeling cabinets all detract significantly from value.
A home that has been freshly painted with brand new carpet, wood flooring, granite counters, plantation shutters, crown molding, new kitchen and bathroom cabinets, professionally trimmed landscaping, and a newly painted entry door, enables a seller to achieve top dollar in today’s market. But, that does not mean that they are able to obtain tens of thousands of dollars above recent comparable sales, especially if any of those have similar upgrades and are in similar condition. It is also important to understand that even though remodeling projects add value to a home, many do not add enough value to recoup the full cost of the project. For example, a bathroom addition results in recouping about 50% of the cost. A swimming pool, family room or master suite additions, a new patio deck, a kitchen remodel, and so many other home improvement projects will not allow a homeowner to recoup the cost of the job.
Homes that are in great condition, nicely upgraded, and are priced at or extremely close to their Fair Market Value, will result in multiple offers for just about every home below $750,000. When multiple offers are generated, a seller is often able to pit them against each other and often sell at their asking price or, in many cases, for even more.
Yet, far too many homeowners stretch their price out of bounds, adding an additional $20,000 to $50,000 above the last comparable sale; ultimately, they just sit on the market without any success. Some sellers are worried about leaving extra money on the table, so they arbitrarily pump up the price. Others want to leave a little extra cushion for negotiating, mistakenly thinking that every home is discounted to some degree. Many simply overvalue their home, honestly feeling that their home is the best in the neighborhood.
The market below $750,000, two thirds of all closed sales, is extremely hot and will continue to be even in the midst of the Holiday Market. If a home priced at $650,000 sits on the market without an offer, it’s the price. It is that simple. It’s not the REALTOR’s® marketing strategy, lack of open houses, or any other of the laundry list of reasons given for why a home has not sold. Quite simply, if an offer is not generated within the first couple of weeks, it is a direct result of being overpriced. Initially overpricing and then reducing at a later date, results in missing the opportunity to be priced correctly upon initially hitting the market. That’s when there is the most interest in a home, when if first enters the fray. Reducing at a later date will get some buyer’s attention, but the likelihood of obtaining multiple offers drops considerably, losing out on the chance to pit them against each other in order to achieve a higher value.
The bottom line for sellers is simple: carefully arrive at a home’s Fair Market Value initially and take full advantage of obtaining the best and highest price possible for your home.
- Orange County Housing Report, by Steven Thomas