The longer a seller’s home is on the market, the less attractive the home becomes to buyers. The best home selling tricks are to price it right, prepare it for sale, hire the best listing agent and attract that excited home buyer who will offer top dollar in record time.
Knowing how to professionally spruce up your home is also part of the battle. The other half is figuring out if you have too much furniture, the wrong type or a bad arrangement and whether it’s worth making repairs or staging your home to transform that house into an irresistible and desirable showcase for potential buyers.
Deciding how much your home is worth is also part of the art and science. It’s a combination marrying analytical statistics to emotional appeal and market movement. You do not want to overprice your home or try to “test the market.” You want to price it just right.
If the house for sale next door to you is a bank-owned home, but all the other homes for sale in the neighborhood are not, you don’t have much of a problem. However, if most of the homes that have recently sold in your area were bank-owned homes and short sales, you have a problem. That problem is you must compete with foreclosures and short sales to sell your home. Your home’s market value is directly related to distressed sales if those short sales and foreclosures dominate the neighborhood.
Prior to the real estate bubble, appraisers would often ignore the distressed sales when appraising a home. Since then, appraisers pay close attention to the number of distressed sales that have closed and those presently for sale.
What’s a regular seller with equity supposed to do to compete?
Pricing a Home With Equity Against Foreclosures and Short Sales
Pricing a home is at best a mix of facts, science and emotions. It’s a combination of wearing a seller’s hat and stepping into the buyer’s shoes. Bear in mind that it doesn’t matter much how much you think your home is worth if a buyer disagrees. Try answering these 3 questions:
- What would make a buyer buy your home over a foreclosure or a short sale?
- Why would a buyer’s lender appraise your home for more than a foreclosure or short sale?
- How much more is your home worth than a distressed sale?
You might be surprised at the answers. The truth is your home is not worth a whole lot more than a foreclosure, even if you put in upgrades, if all the recent sales are foreclosures and short sales. Appraisers don’t give a huge allowance for upgrades like they used to do.
Buyers want a good deal. They might buy a home that needs carpeting, for example, if adding the cost of new carpeting still makes that bank-owned home’s price attractive. On the other hand, if your home, with equity, is in tip-top shape and priced within the range of distressed sales, a buyer is much more likely to choose your home.
However, say, a bank-owned home priced at $200,000 needs $10,000 worth of work or improvements. If your home doesn’t need any work, a buyer might offer only $210,000 for your home.
Examine the Foreclosed and Short Sale Comparable Sales
Look at every similar home that has sold in the neighborhood over the past three months to determine comparable sales. The list should contain homes within a 1/4 mile to a 1/2 mile and no further, unless there are only a handful of comps in the general vicinity or the property is rural.
Pay attention to neighborhood dividing lines and physical barriers such as major streets, freeways or railroads, and do not compare inventory from the “other side of the tracks.” Perceptions and desirability have value. Compare similar square footage, within 10% up or down from the subject property, if possible. Compare homes with similar ages. One neighborhood might consist of homes built in the 1950’s, co-mingled with another ring of construction from the 1980s. Values between the two will differ. Compare apples to apples.
Tip: We suggest to our clients that they price homes among distressed sales a little bit below market value. This tends to drive multiple offers as buyers outbid each other, resulting in a higher sales price for sellers.