Real estate question for Brad Johnson

[Monkeyleg]

Brad, I hope you have time to reply to this.

We just interviewed our first realtor for selling our house and, as I suspect a lot of home sellers are doing, I'm questioning whether the realtor is right about pricing.

In February of 2008, our home appraised for $170K for a refinance. After that we remodelled the upstairs bath ($5K), put on a new roof ($4500), had new interior drain tile and sump pump installed ($4500), had new furnace and AC put in three weeks ago ($5K), had the chimney rebuilt ($1K), upgraded electric ($1200), and a whole slew of cosmetic things that ran another few thousand.

In August of last year a neighbor's house sold for $166K from an asking price of $169,900. The house is smaller than ours, doesn't have a formal dining room as does ours, and has two bedrooms instead of the three that we have. The realtor brought that one along as one of the comparisons. The other homes he brought were comparable in size, but were in neighborhoods not as desirable as ours.

Our neighbors have been saying we should be able to get $200K or better for our place, but I thought $180K would be about right. The realtor says the market has gone downhill since August of last year when our neighbor's house sold.

Is he right on that? He's suggesting we price it just below $170K. He said we could try $178K or so for a week or two, but no longer than that.

I'd sure appreciate your input.

[Brad Johnson]

Glad to help!

Have the agent show you the comparable properties they used to determine the est market price.  That's the only true measure.  Have them go back a year.  Fall/Winter is traditionally a slow time for real estate and only going back 3-6 months doesn't give you an accurate picture.  You're coming into what is traditionally the hot real estate season, spring and summer.  You want to know where to position yourself for that.

As for what they neigbors say, well... if they were a buyer it would matter.  They aren't so it doesn't.  They might be real nice folks, but they aren't market specialists.  They're a bunch of people running off at the mouth, regurgitating heresay, supposition, and contextual incorrect comparisons.

Another good method is pop the couple hundred bucks to get an inedpendent appraisal for MARKET value.  You're refi appraisal is, unfortunately, worthless in that respect.  Totally different dynamic involved.  In your case I'd strongly recommend getting one.

By the way, you mentioned refi.  As of this morning the local rates were 4.25 for 15yr fixed and 4.875 for 30 yr fixed (no points, no buydowns).  If you have a 6.5% rate from a couple years ago you can refi on a 30 yr and save appx $100 per month per $100k financed.  Go the 15 year and the payment increase by roughly $115 per $100k financed, but you knock a full two-thirds off the total interest paid over the life of the loan.  If anyone is interesed drop me a line.  I can hook you up (no, I don't get a commission on it.  It's just a favor for the folks here on APS).

Brad

[Monkeyleg]

Thanks, Brad. Why would a realtor try to lowball the price on a home if he's making a commission? Would he be trying to do a quick sell to get an easy commission?

The guy impressed me with his marketing. Rather than do still shots for the internet, they do videos, which they have on their website and other sites, and also on DVD's that they  put in a box next to the box of flyers with the For Sale sign. I've seen that sort of thing before, but not for low-priced homes.

He showed us many comparables, although none are similar enough to our house to be easy to compare. There are no two homes that are remotely the same in our area. Every one is different.

We have another realtor coming tomorrow. It will be interesting to hear what she has to say.

BTW, I'm guessing that we have the best shot at selling our place before the tax credit expires on April 30. After that I would think the market might go flat again. Yes? No?

Thanks again.

[Northwoods]

Brad knoweth what he speaketh.

If I were you I'd interview a minimum of 3 realtors.  More if you want to.  Throw out the guy(s) that gives you the highest recommended listing price (if it's by a significant margin - if the high guy says $170k, and the other two say $169-169.9K then whooopie).  He's just trying to tell you what he thinks you want to hear, not what the market reality truely is.

It does you no good to list for $200k if the market value is really $165k.  All that will do is result in your house languishing on the market for far longer than it otherwise would.

Remember that past values, and the work you've done to the place are not additive when determining the value.  All that work adds value, but not as much as you spent, and it only adds to what the value would have been today had you not done that work.  

[Monkeyleg]

I understand what you're saying, Sumpnz. Given the selling prices I've been seeing right in my neighborhood, though, I have to wonder.

[Northwoods]

Why would a realtor try to lowball the price on a home if he's making a commission? Would he be trying to do a quick sell to get an easy commission?

That is certainly possible.  When we were selling our house in Tucson we had several realtors that wanted us to price at $170k or even less.  We listed it at $189.9k and it sold in 4 hours.  Those other realtors obviously didn't have a good handle on the market and thought they could still make a quick buck. 

But you're assuming that the realtor is lowballing.  He may well be giving you his best professional estimate of what it would take to actually get you house to sell within a reasonable timeframe.  He could price at $1.7mil, and as long as you were willing wait 100 years eventually it would sell.  Or he could price it at $170k and get it sold in 90 days.  At $17k it would sell in about 90 nanoseconds.  The higher you price it the longer it will take to sell, so pricing is more a matter of how long can you tolerate the sale to take than anything else (all else being equal anyway). 

The guy impressed me with his marketing. Rather than do still shots for the internet, they do videos, which they have on their website and other sites, and also on DVD's that they  put in a box next to the box of flyers with the For Sale sign. I've seen that sort of thing before, but not for low-priced homes.

Marketing bling is great, and has its place.  But more than that what you want to know is how many homes has he sold in the last X months, how long were they on the market before getting under contract, and what was the ratio of asking/selling prices.  And of the unsold homes in his current inventory what is the distribution of days on market?  How does all of this compare to the local averages?

He showed us many comparables, although none are similar enough to our house to be easy to compare. There are no two homes that are remotely the same in our area. Every one is different.

Not that unusual.  What he needs to do is take all the homes that have sold in the last X months that are within +- 20% of your size house and with comperable size yards and average the $/sq ft for those  homes.  That number times your sq ft would be a reasonable starting place for determining listing price after making some adjustments based on how old some of those comperable prices are and other applicable local factors.  If you can get a large enough sample it'll capture homes that are fancier and in more desirable neighborhoods to balance out the ones that are less fance and in less desirable neighborhoods.

We have another realtor coming tomorrow. It will be interesting to hear what she has to say.

Good.  Get at least one more.

BTW, I'm guessing that we have the best shot at selling our place before the tax credit expires on April 30. After that I would think the market might go flat again. Yes? No?

Maybe, maybe not.  There are some people wanting to buy now before that expires.  Others (like I would be if I were in a position to buy) might be waiting until after then in hopes of a price drop.  In my case I wouldn't qualify for the credit as it's been less than 3 years since we sold our Phoenix house.  Other people possibly waiting on the sidelines would be investors.  Whether or not prices drop after that tax credit expires will depend on how many start buying after vs how many are buying now becuase of the credit.  I would tend to think though that prices would decline at least a bit.

[crt360]

Well, crap.  My nice, carefully crafted response just vaporized.  So, basically, what Brad and sumpnz said.  And, yes, from what I've seen, it's not unusual for a realtor to price at the lower end to sell quickly, especially if they have a lot of listings and need to keep things moving.  If they're only getting an extra $300 to get you 10k more, but it takes twice as long to sell, they're losing money.  It does sound like the comps are little off.  If it would make you feel better, spend a few hundred on a good appraisal.  In your position, I probably would.

[Does anyone else keep getting "Sorry, you cannot post topics on this board" messages when trying to post a response?]

[Northwoods]

That is certainly possible.  When we were selling our house in Tucson we had several realtors that wanted us to price at $170k or even less.  We listed it at $189.9k and it sold in 4 hours.  Those other realtors obviously didn't have a good handle on the market and thought they could still make a quick buck.  

Just to add to that paragraph, when we were selling our Phoenix house it was in the decline about a year after the overall peak in prices.  We got probably the best overall realtor in the greater Phoenix metro area.  He worked hard and earned his commission.  I felt like he did an awesome job to sell that house in just under 90 days.  However he flat out refused to even accept the listing if we went anything over what we did finally list the house for.  We rejected 2-3 other realtors that suggested significantly higher listing prices.  When it sold we still had to take a $20k reduction from asking price, but it still sold.  Had we refused to budge we'd be sitting on a house now worth 60% of what we had sold it for.

When you're in a declining market it is vital to price your house aggressively from the start.  Otherwise you're going to just chase the market down and that is a loosing proposition.  You want the house to list for no more than 105-110% of what it should actually sell for within 90 days.  That way it will sell in a reasonable time frame without you having to do a price drop.  And if the market starts to rebound you're not leaving too many dollars on the table.

[Monkeyleg]

Thanks again for the replies. As I mentioned, the comparables weren't entirely comparable. Ours is a very desirable neighborhood (given that it's the south side of Milwaukee), and he had a couple of homes from our neighborhood in the dozen or so comparables he brought.

One of those was the house I mentioned that sold for $166K, and was smaller and not as nice as ours. I was in it, so I know the house. The advantage they had was that the house had a two car garage, where ours is a one car. That's the drag on our house.

Another house he had was a little over a block away. It was a bit larger than ours, but was very plain. I saw this place, too. It sold in the 170's.

He had another house two blocks away that is a bit nicer than ours and slightly larger. That one sold for $199K last year.

What he didn't have was a house on the next block that looks to be the same size as ours, but maybe not as nice (I didn't see the inside). It sold last year for $209K.

If I go with the 105-110% multiplier, and assume that we're going to get the $166K or so this realtor says, then we could be asking 174 to 182. He suggested that we try this if we want, but only for a week or so. All of his sales seemed to be within $3,000 of asking price.

Time to call him back.

[Northwoods]

Note that that I said "no more than 105-110%" of expected sale price.  So if you needed to go less than 5% over expected sale price, there's nothing wrong with that.

You mention some homes that sold "last year".  How long ago did they sell?  If it was closer to this time last year than it is to now you'll need to look at the other, less comperable homes homes in the area to determine the trend for pricing and use that to adjust the truely comperable homes. 

When deciding on how to price your home one thing to keep in mind is that you have try to think like a buyer and not as a seller.  You have to look at your house as though you were thinking about buying it and what you would use to try to justify getting the best deal on that house that you could. 

If I see you house listed for $175k, and then I look at another home that recently sold in the area for $166k that was about the same size and similar curb appeal I'm not going to want to pay more than $166k for your house.  I'll either pass on your place as overpriced or I'll offer $166k (or less if I think the market has declined since then) and refuse to budge.  That your house is way nicer on the inside won't matter as there's no way for me to know how nice that other house was on the inside.

Mind though, all of those numbers are hypothetical.  Get the real ones via your chosen realtor.

[Brad Johnson]

If I go with the 105-110% multiplier, and assume that we're going to get the $166K or so this realtor says, then we could be asking 174 to 182. He suggested that we try this if we want, but only for a week or so. All of his sales seemed to be within $3,000 of asking price.

That's the guy you want.  He's letting you try it your way, but on the condition that you re-examine and re-evaluate if your way doesn't work.  From the comps it sounds like the guy has done his homework, making reasonable adjustments to the comparable values before applying them to your property.

Brad

[Monkeyleg]

We interviewed two more realtors today, and they both said the house should be priced closer to $180K, with a sale price somewhere from $170 to $177. Both said that all of the new "hardware" made the house worth a bit more than some of the comparable homes that have sold.

Both of these realtors have years of experience, so it's not like they're newbies. One wanted to start at $184, but I thought that crossing the $180 mark would be a mistake.

I'm thinking that the first realtor may have wanted to sell quickly for a commission, even if it's a few hundred less. He was very organized, but I really sensed that he was pushing us into the $160's even though our house is nicer than homes that have sold in that range. One of the realtors we talked to today said that, if we priced the house that low, it would sell in a day.

I know that, for some folks here, $170K is the price of a good garage, but it's a lot of money to us.

Thoughts?

[Brad Johnson]

I'd still take the agent telling you the lower price.  Sounds like the other two are trying to tell you what you want to hear, not what you need to hear.  Take the advice.  Put it on in the 170's for a week, then make adjustments based on showings and feedback.

Brad

[Monkeyleg]

Put it on in the 170's for a week, then make adjustments based on showings and feedback.

I was careful to tell the agents that I had no idea where I thought the house should be priced. However, one of the agents today suggested doing just as you did, and seeing what happens after a week or so at $177K.

The agent from yesterday frustrated me a bit by comparing our house--which is in a desirable neighborhood--to homes that were in far less desirable neighborhoods, and were comparable only in numbers of rooms, size of garage, square footage, etc.

It's unusual to have our assessed value be higher than what a realtor is recommending as a sale price.

[Brad Johnson]

If you're not comfortable with the comps or the way they were figured, don't use them.  You can tell if the comprabable property is just that, comparable.  You've put a ton of money and effort into your home in the last few years, something that tends to skew the judgement of even the most level-headed and analytical among us.  It will take a conscious effort to back off and be objective.

Concentrate on actual marketing, not just the fluff.  Even a so-so agent might be a better investment if their company does a better job of marketing.  An agent can know every figure, every fact, give you all the right information, and be spot-on with their comps, but if there company has a crappy marketing strategy then they aren't the best choice.

As for the assessed value, it's not surprising.  The only relation to market price is that most state laws stipulate that assessed value cannot exceed market value.  Assessments are made on the basis of taxation, not market price, and then progressivly increased based on whatever calculation the taxing authority chooses (most use local COLA indexes or have someone do spot comps around the community, average the findings, and apply it community-wide)

Brad

[Tallpine]

$179,990   

[never_retreat]

$179,990   

I'll give you $179,989.99. Thats my final offer.

[Monkeyleg]

Going once, going twice... :D

Brad, I was thinking we'd be able to sell in the 180's. Just to be absolutely sure, I've asked another realtor to come on Monday. I didn't let him know any of the prices that have been discussed. He looked at "comparables" on the phone and was talking about pricing in the 190's. One realtor from yesterday started there, too, and I said that was a mistake.

I'm not just going for a fourth realtor for price estimates, though. The first guy worries me, at least for now, because of him wanting to sell in the 160's. The second guy was dressed in a Green Bay Packer jacket and smelled strongly of smoke. The woman whom we met with last evening didn't seem quite on the ball.

I've taken less time to decide on a surgeon.

[Brad Johnson]

Go with your gut.  If they don't seem very professional or up to speed on the market now, they sure won't be in the future.

Brad

[Monkeyleg]

I went with my gut, Brad. The guy I met with today was more professional in all respects, had at least as much experience as any of the others, didn't smell like smoke, and is very pleasant to deal with.

He also said $178. Three out of four must be right.

[Monkeyleg]

Well, we signed up last Thursday with the realtor. We've had three showings since, and the couple that looked at the house today is going to write an offer tomorrow.

They were only in here for half an hour. Their agent told our agent that they're going to look at ten more homes this weekend, which will bring the total for the overworked agent to 35 homes.

An offer this soon makes me think that we shouldn't give up a lot on price. Of course, I'm the worst person to make deals.

[Brad Johnson]

Good news!

See what they offer first.  You never know 'til you have paper in hand.  As for giving up on the price, consider that it might be better to take a few bucks less now than to stick to full price and risk it being on the market for a while and racking up all the extra insurance, taxes, payments, etc.  Most of something is often better than all of nothing.  But, again, wait until you get the offer and make your decision then.

Brad

Brad

[Monkeyleg]

Thanks for the advice, Brad. I'll wait to see what their offer is.

Any time I've had something sell very quickly, I've regretted doing so later on because I realized I priced it too low.

I don't think I'd write an offer on a house after spending just 30+ minutes in it.

[Brad Johnson]

Some will, some won't.  I've had people write offers after less than ten minutes in a house.  Others have been back three or four times before they did.  To each his own.

Brad

[Monkeyleg]

Well, they came in with an offer of $165K, and my agent is all hot about it. This was one of the three agents who said the house should be in the upper 170's, and shouldn't be in the 160's.

Now he's saying that the offer is 92% of what we're asking, and making it sound like it's a great deal. The buyers were only told about the new furnace. They weren't told about the roof, basement drain tile, sump pump, A/C, electrical, etc. If I wanted $160 I could have skipped all that.

I hope this guy isn't going to try to talk us into accepting $13.5K less.