It Is More Difficult Than It Looks

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For some time now, pricing a home has been a bit easier than normal, because of a raging hot market full of desperate buyers.  Agents were able to do a quick check and just add thousands to the number we derived…and it sold for that number or more!  I say ‘quick’ because the market moved so fast if we took too much time, we’d have to start over because another buyer would swoop in and buy the house before we were ready.  Well things have changed.  Pricing a home is as difficult as it has ever been for many reasons, not the least of which is that the markets are in flux…markets meaning 1) economic; and 2) housing.  Pricing a home has become a formidable task.

First, let me say that any agent who does a plug-and-chug ‘CMA’ and takes that as gospel is inexperienced.  You know the ones:  Plug in some recent sales and let the computer spit out a number.  I have never used them, don’t even know how.  They’re never right, and they CAN result in a home selling extremely fast (sounds good, right?) but for far less than it is worth.  Sometimes I see sales prices and shake my head.  Sometimes I can spot an inexperienced listing agent a mile away.   If a contemplative deep dive market analysis is done, the sales price makes sense.  A market analysis is complicated, involved, and takes hours.  It involves at least sixteen different elements, not the least of which is the economy.  And as I have said 99 times now, real estate is local, so a major factor is where the home is LOCATED, even within a subdivision.  Prices of recent sales nearby is just one factor of many, some with greater weight.

Greater weight?  Like what?  Well, what if a scary crime happened on a walking trail that loops around the community?  There you go: News.

Many years ago I used a spreadsheet, a BIG one, to price my homes.  This spreadsheet almost included the phase of the moon.  I loved it, in part because by the time I finished using it, I practically knew how many grains of sand were in the driveway of homes on the street.  It forced me to think about things most agents never consider, like: what percentage are buyers willing to pay above existing home prices to get brand new?  I know that number.  It holds true every time.

But today, it’s hard on both buyers and their agents, because while buyers look at the size of the closets, their portfolios are shrinking.  Their buying power is fading.  Their certainty about what they are about to do is waning.  Several things are changing because of these and other things, but one is that leverage is equalizing, meaning buyers don’t have to just open their bank accounts and pour them onto the table in order to compete.  I’m actually glad about that.  I serve both buyers and sellers, and I don’t like inequity in any form.  But while we achieve that fleeting balance we love, times are tough and deals are at risk for other reasons that what we ‘usually’ see.

So when you look at homes, know that the ground is shifting under your feet.  Sellers should stop expecting buyers to pour mounds of cash into the deal up front, and they should expect to negotiate.  No longer can sellers pick a high list price out of their wish list and expect to get it.  Prices are dropping; it’s a new day.  Buyers, please be careful about trying to buy every inch of your financial ability.  You may get near to closing day and find out you can no longer afford the home you want to buy.  Buyer agents, you have time to step back, cross your arms, and analyze the price of this home your buyers want to buy.  Do it carefully.  And Listing Agents, put on your work boots.  Pricing a home is as hard as it has ever been.

Buyers, before you shop, please get a handle on what you can expect for your price point.  In other words, be realistic.  And know that in these uncertain economic times, you should have well defined boundaries that will respect the times in which we currently live, and also keep you in the hunt.  If you put yourself too close to the edge, you could get pushed out overnight.

Homes are still selling; that’s the good news!  But the overpriced ones sit on the market a long time these days, and if they do go under contract, they may not appraise for that too- high list price.  I know, another element to consider.  Now, understand that if you have a pile of discretionary money, it doesn’t matter what the appraiser says.  Remember the LENDER is not going to lend more than the amount for which the home appraises.  Sometimes, only 90% of the appraised value is the loan amount, sometimes less.  If a buyer can make up the difference out of savings, great.  But appraised value has moved up in ranking as a strong pricing factor.  So be aware and plan accordingly.  

This one factor can lose the buyer their due diligence money, guys.  Remember if the buyer walks away, they lose their due diligence money.  This is one reason due diligence amounts are falling, as they should.  The market is too uncertain to put huge amounts of cash at risk.  Those days are over, thankfully.  Buyers and sellers don’t control the economy.  Be careful about list pricing and about offer prices.  And good news: You can negotiate again.  

Finally, watch the economic news.  It is the 900 pound gorilla.


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