I see this every day. A homeowner will call me and want to know at what level their home should be priced in today's market. I review the recent sales in the country records, as well as those in the local multiple listing service (MLS). I then use my own knowledge of the area and the pricing out there, and often consult with colleagues to get their impressions. I then analyze the data I find.
With that information, I go out and present my results to the owner, and let him/her know withing which price range their home will fall. In most cases, the sellers trust my intelligence, training, and experience and go with my recommendations. However, for some reason, there are those that insist that their home is worth more, yet can provide little valid and tangible evidence to support their beliefs.
Apparently, this is not the case in other areas of the country. Unfortunately, Florida has 4 of the cities with the worst over-pricing in the country. This is according to Forbes Magazine. You can see their list of the "most bang for the buck" cities by clicking on the following link and go to their site: http://www.forbes.com/2009/11/30/cities-affordable-cheap-lifestyle-real-estate-housing-foreclosures_chart.html
You will find Orlando, Miami-Ft. Lauderdale, Jacksonville, Tampa/St. Petersburg, and some others at the bottom of the list.
You might ask, why would a homeowner knowingly over-price their home when they know that similar homes are selling and have sold for less? Here are some of the reasons I have encountered, none of which are valid or reasonable in our current market (or any market for that matter):
- They have made improvements and are simply adding those costs on to the price they paid for the home. Almost no improvements will immediately get you 100% of your investment back. Baths and kitchens are the best, but in most cases even those will not recover all of your costs unless you wait a few years before you sell. And if by improving you "over-improve" your home for an area, you may never get the costs back. Note, I am speaking of remodeling/improvements here, not needed repairs. Repairs will help you get more for your home, as well has help it sell more quickly.
- Sellers get emotional about their homes. It is "MY HOME" and that makes it better than the rest. Kind of like the mother who thinks her son is the smartest, cutest, best behaved, etc. A nice thought, but of no real value to a buyer. I had one seller who had a pile of rocks (she called it a rock garden, but that was stretching it) in her front yard. To her it was valuable since each rock came from a place she and her husband had visited. But to a buyer it was just an ugly pile of rocks in the front yard and not worth the thousands of dollars the owner thought it was.
- Owners sometimes concentrate on what current ACTIVE listings are priced at. An appraiser from a bank will not even look at active listings. He/she will only consider SOLD properties since those are the proof of what people are willing to pay for similar homes in the area. Asking prices prove nothing. They could be way over or under the realistic price of the home.
- Sellers might be looking at sold properties, but from too far in the past. What an owner could get in 2005 is definitely not what they can get today. We should all know that by now.
- Sellers say they "need" a certain amount to pay off a car loan, get their kids through college, pay off the mortgage, etc. This has nothing to do with what the home is worth at any point in time. What the buyers are willing to pay is what the home is worth. Buyers do not care what you NEED. They will buy the similar home next door if it is cheaper. A hard but timeless truth.
- Owners often listen to their neighbors who tell them that they sold their own homes for much more than they really did. Usually the county records can reveal the truth. I had one seller who said his neighbor sold an identical house next door for $234,000 less than a month in the past. My seller wanted to get that much too. When I checked in the public records, it turned out that the neighbor's home sold for over $40,000 less than he had said it did.
- Sellers hate to lose money. I understand fully and sympathize with them. Many who bought in 2005 and 2006 are "upside-down" and owe more than their home is worth. Of course, the same thing happens all the time for anyone in the stock market. If you wait long enough, prices usually come back up if the company is sound. But if you are upside-down in your situation, sometimes you just have to: bite the bullet and wait it out, sell via a short sale if you can, or go into foreclosure. Sad, but true. However, buyers will not over-pay and put themselves in the same situation to pull you out of the fire.
- A little like the last comment, but not nearly as bad, are the sellers who bought back before the boom. Maybe 10 years ago, for example. They paid $75,000 for their home, which in 2009 is now worth $150,000. Not a bad profit. However, they cannot get it out of their heads that if they had sold back in 2005 they could have received $225,000! So now, they want to still get that much, even though that "train has now left the station". They could still sell now with a nice little profit, but refuse to put a reasonable price on their home since they cannot accept the fact that they missed the peak.
- Some sellers do not play the game of pricing just under a benchmark. For example, instead of pricing their homes at $199,900 they insist on putting $202,000 on their property. So anyone searching for homes at 200K or under will never see the listing, even though it is only a few thousand off. Why do we see $4.99, $19.95, etc on prices in stores? It sounds better and looks cheaper even if it is almost the same. If it did not work, the stores would have stopped doing it years ago. Trust me! It does make a difference.
- Some sellers, hard to believe I know, are just greedy. They want to make a killing and insist that they will get it. Even though the very idea flies in the face of logical thinking. It almost never works out, and as the months and even years pass, their homes become "stale", and for all intents and purposes, disappear from the market. Agents forget them, and so do the buyers who might have made an offer if the price were within reasonable limits. When buyers do finally see them, they see that they have been on the market for 657 days, for example, and are much more likely to make a very low offer.
In most cases, agents (certainly I do) warn our customers to avoid these traps. But there are times when no amount of convincing will make a seller be reasonable. It is sad to have to refuse to take an over-priced listing, see another less experienced, ethical, etc agent take it, and then see it go unsold month-after-month. Or worse, see it go into foreclosure since the sellers ran out of time while it sat priced too high. That is truly sad! But I see it happen often.
So, examine the data your agent presents you with, and consider his or her advice very carefully and seriously. If you are not confident with his/her abilities, get a second opinion. But do not make the mistake of over-pricing your home. In the end, it almost never works out well.
John Elwell - REALTOR
Bill Nye Realty, Inc.
Licensed in Florida