Wednesday, January 02, 2008

The Price Must be Right

Recently I drove past a house that my son passes each day on his way to and from school. My son, who was in the car with me, noted that the realtor sign in the yard was different. First the home had been for sale by owner for many months. Then it had a professional realtor sign out front for half a year. Now there is a different realtor sign.

As we drove by the house, my son wondered aloud why these people can’t seem to sell their home. I responded that there were only three possible reasons: 1) they are asking too much, 2) they haven’t successfully advertised the home to realistic potential buyers, and/or 3) it’s just a lousy home (i.e. due to location, construction quality, ground water problems, etc.). Of course, all of these things basically come down to one thing: the sellers are insisting on pricing the home higher than the actual market value of the home. You can sell even a desperately awful home if the price is right.

The home in question is at least 40 years old. Its construction quality was obviously below average even when it was new. The home has had many owners over the years, but some of the recent owners have done major structural and cosmetic upgrades to the place. It looks much nicer than it ever has. The location is decent. It’s in a fine neighborhood. It doesn’t have water problems. The place has a track record of being successfully sold in the past. It has been aggressively marketed for nearly a year, and yet it does not sell.

The only possible answer is that the owners are unwilling to sell the home for the price the market will currently yield for it. I suspect (but do not know for sure) that the owners have more invested in (and/or owed on) the home than what a reasonable buyer is willing to pay for it. Perhaps they even went into the place as an investment. Many people have bought and upgraded homes to sell them for a profit. But in a declining real estate market, any gain you might have received for your efforts can quickly evaporate as market prices generally decrease.

If you are considering buying or selling a home, it certainly pays to be aware of what the real estate market is doing — especially the market in the area where the home is located. There are general national, state, and regional trends that matter. But what matters most is the market in the immediate vicinity of the home. Armed with this kind of information, you can make appropriate buying/selling decisions.

You can't make the real estate market do what you want it to do. I suppose if you're not very serious about selling, you can put a high price on your home and then wait to see if some sucker comes along that is willing to pay it. But if you're serious about selling, the only way to move your home is to price it according to market conditions.


Jeremy said...

Pricing a home at close to market value in Utah can be tough. Most of the market data one would use to get an accurate idea of market value is only available to Realtors through their Multiple Listing Service. Utah is a non-disclosure state for real estate transactions which means that there is no public record of how much homes sell for.

In Utah we've created a situation where home sellers must essentially rely on a realtor or a fee appraiser to ensure that their home is valued accurately.

We really should get rid of our non-disclosure laws so people trying to sell their homes themselves have access to the data they need to establish an accurate market value for their property. The current monopoly on this market data maintained by Realtors just isn't right.

That One Guy said...

Jeremy, you are SOOOOO right here... The non-disclosure here helps ONLY realtors. The state's residents are held hostage. Data for national studies, etc, also becomes flawed and the ability to effectively report on trends and market movement effectively are practically non-existent.

Additionally, sellers are usually the last to admit that there is a depreciating or even flat atmosphere in real estate markets. Some homes get "trapped" on the market for very long periods of time. They remain listed on the MLS, or get re-listed, leaving an MLS stgma to the house, and pretty soon, even realtors won't take clients to see it, assuming there must be something gravely wrong with it.

Godd thoughts, both of you.

Reach Upward said...

I don't quite understand Utah's non-disclosure rules. The most efficient way any seller or buyer in any kind of market has of determining the proper market rate is via pricing information. Government should work to make this kind of information as omni-available as possible, rather than to suppress it to protect the power of certain groups. Could it be that these rules exist in Utah due to the high number of realtors serving in the legislature?

That One Guy said...

BINGO. Realtors have held us all hostage to the MLS for a long time here. They are legislators, and their lobby group has about the deepest pockets out there, locally and nationally.

I don't see the non-disclosure thing changing for a while. To our detriment.

Jesse Harris said...

I did a count once and found that about 40% of our legislators are realtors, developers or government employees. That hardly seems representative.

Reach Upward said...

I don't know. TOG has noted elsewhere that many Utahns have a realtor license, and that the vast majority of Utah realtors move only one or two homes per year. So maybe 40% isn't terribly unrepresentative ;).

Of course, when you have a monopoly that lets you pull down 3.5% or 7% (if you represent both sides) of a $280K sale, you don't have to move too many homes per year to make a handsome living. Just don't forget to make a campaign donation to your friendly realtor-legislator to make sure your exorbitant commissions aren't threatened by commoners having pricing information.