This presentation will cover the time line of selling your home. You may jump to any of the topics below if you like. Or just read through the entire presentation to learn what you will need to know.
Why are you selling? And why is this question so important? Because ultimately it will determine your asking price. And your asking price will determine the amount of time you can expect to be "on the market".
Let's say a home just like yours sold yesterday for $400,000. And now you want to list your home and achieve the same result. How much should you list your home for? One clue would be how long your neighbor was on the market. If he was listed at $435,000 and was on the market for 6 months, you can probably expect a similar marketing time if you ask $435,000.
But what if you have a new job and would like to sell in 2 months? Your best bet would be to bring your list price much closer to your likely selling price of around $400,000. So maybe you might select a list price of $415,000 based on your motivation. Now let's say you have a mortgage of $390,000. If you sell at $400,000 and pay a commission of 5%, you will be left with $380,000 and will be "short" $10,000. That is $10,000 you will have to bring to the closing table to complete the sale. You really need to net $410,000. How much should you list your home for? Well you could list it at $435,000 like the neighbor. But if you do that it will probably take longer than the 6 months it took your neighbor to sell at the same asking price. If you are not that motivated to sell quickly, but need a little bit of extra money, then you might want to list at $435,000 and wait longer. Or make some improvements to the house and try to make it a better value than the neighbor was.
The bottom line is it all comes down to your motivation. If you want to sell quickly, you need to price your home very close to the expected final selling price based on an analysis of very recently closed sales. If you want to sell for a higher price, you have to be comfortable with waiting and being on the market for a longer period of time.
This is a perfect illustration of the phrase: Time is money.
So, when I come up to discuss listing your home, one of my questions will be: "What's your motivation"?
If you need to sell quickly, you will need to list close to your anticipated selling price. If you have more time, you can try to attract a somewhat higher offer.
OK, so we've examined our situation and we have some idea of our motivation. On to the next step. Determining the asking price.
For most people selling their home, determining the asking price is "The Big Decision". And it is the single most important factor in determining how quickly your home will sell, or even if it will sell at all. It would be a difficult decision without emotional involvement. But of course emotions are hard to avoid when its time to sell your home. After all, it's "your home"!
Nonetheless a very rational and unemotional process has to take place, and it has to consider answers to the following 10 questions:
1) What is the local real estate market doing in general? This is known as market conditions.
2) What homes have recently sold that are a good match for your home? These are known as comparable sales, or "comps" for short.
3) What homes that are a good match for yours are presently on the market? These homes will compete with yours. These are called active listings.
4) What homes that match yours have failed to sell? And why? These are known as expired or withdrawn listings. A withdrawn listing is a home that is removed from the market before the end of the listing contract by the owner or his agent. An expired listing is a home that fails to sell during the period of the listing contract and is automatically taken off the market on the expiration date of the listing.
5) What homes that match yours are presently under contract? These are called pending sales.
6) What price do homes actually sell for in relation to their asking price? This is called the sale-to-list ratio.
7) What is there about your home that is different than the others? There are going to be several key factors that might be different in your home from some of the other close matches. What are they? And how much is that difference worth? These are called market adjustments.
8) What is your motivation to sell?
9) If you have a mortgage on your home, will the selling price you hope for pay off the entire mortgage and allow you to move forward? Or will you be "short" if the hoped-for sale price cannot be achieved? And if that happens, then what?
10) Quite frequently, things will happen after you go into contract that will alter the selling price. A home inspection item may need repair or replacement. Or the buyer may request something in the house that you weren't planning to sell. Or the appraisal may come in too low. You may want to think about that possibility in coming up with an asking price.
So now let's cover these 10 questions one at a time. Click on Price part 2.
1) Market conditions
Market conditions are the economic forces that act to change housing values in the neighborhood. An example would be employment prospects. If an area features strong job growth, that will create a market condition that acts to raise housing prices. Layoffs in the area could have the opposite effect. A major company moving in will create a positive force on prices.
Another example would be environmental factors. Let's say a nearby industrial site is discovered to have polluted local water supplies, and let's say homes in the area use well water. That can create an adverse market condition that would depress prices. In Pompton Lakes such an area was discovered in the 1960s. It is now referred to as "The Plume". Homes in this area sell for less than they would without this negative market condition.
Let's say a commuter rail station opens near a particular neighborhood. That can act as a positive market factor that will raise demand in areas nearby. Especially within walking distace. That is why there is very strong demand and very high prices for homes in "train" towns like Madison, Chatham, Short Hills, etc.
If you look at this article about the hottest markets in northern NJ, you will see that most of these towns have access to commuter trains. This creates a very positive market factor.
So how does this translate for me if I am pricing your home. Do we need to identify the specific market conditions that affect your pricing? We don't need to identify each specific condition, but we can identify their combined effect by noting the overall trend of pricing.
So, let's say we notice that homes in your town and neighborhood have risen by about 6% over the past year. If the comparable sales we select to match your home all took place about 6 to 10 months ago, then we might want to add a certain percentage to your asking price to reflect these market conditions.
2) Comparable sales
This is the most important factor in determining your asking price. What have other homes that are similar to yours sold for? We call these homes "comps". The first job is to select these comps. So what makes a perfect comp? A perfect comp is a home that is exactly like yours in every respect. Which is of course impossible. But that is the ideal. So I look for a home that is the same model as yours with the same floor plan and architecture. I look for condition and features that are as close to yours as I can find. I look for similar quality in terms of material and workmanship. I look for a home in a similar location and with a similar site and landscaping. And then I look for a very recent closing date. The more recent a sale, the better it is at reflecting the market conditions we described earlier.
What if there are no very similar homes? The answer to that is we make the best of it and adjust the sales for their differences. Here's an example. Let's say that after researching the market over the past few years, we see that buyers are willing to pay about $6,000 more for a house with a fireplace. A recent comp sold for $400,000, but it did not have a fireplace. Now we're going to list your home, and you do have a fireplace. So if your home were the same in all other respects, we would expect your home to sell for $406,000, plus or minus. We can never get this exact of course. Every different individual buyer will have their own preferences and will value the fireplace differently. But that's the general idea.
Typically, your home will have several differences from the comps that we will have to account for. Things like location, condition. quality, basement finish, renovations, lot size, a pool, etc. I will be a good resource for this process because I am also a certified appraiser. Selecting comparables and adjusting for differences is part of my job.
3) Competing listings
The next factor will be an analysis of competing listings. What is presently on the market that will compete with your home? Buyers will typically visit all the listings that are in the same price range. So we should do the same thing. At least virtually by examining all the available data on the Internet, especially the interior photos that show features and updating. Ultimately, the price you select to list your home at should give the buyer pool compelling reason to select your home to purchase over the others. It's a bit of an economic war in a sense. The homes that provide the best perceived value when compared with the others will get the offers first. So our goal is to provide that perceived value. And we do it with pricing, and presentaiton.
4) Expired and withdrawn listings
Sometimes we can learn about pricing from the failure of other listings to sell. Usually there are 2 scenarios.
A home may be listed for sale and simply expire. That means it did not receive any offers, or perhaps it received an offer, but there was never a successful closing. A listing that expires without offers is usually overpriced. Buyers do not consider it a good value relative to the other available homes.
The other scenario is a listing that is withdrawn before its expiration date. That could happen for several reasons. The seller could decide that he or she no longer wants to sell. Sometimes if there is no traffic and the home is getting no showings, the seller might decide it is better not to sell than reduce the price. Or there could be job or family issues. Unless a withdrawn listing has been on the market for a long time, it is ususally not as good an indicator of market conditions as an expired listing is.
If we are deciding how to price your home and there are some relevant expired or withdrawn listings, I will usually make phone calls to the agents who listed the homes and see if I can figure out what the problem was. The information might be of use to us in pricing your home.
5) Homes under contract
Some very useful information is available from homes that are under contract. The first thing we would like to know is what the home is selling for. That is usually not given out by the listing agent. However, I can sometimes get some sort of indication through a conversation. Even a vague resonse like "We got close to list", or "It was a low offer, that's all I can say", is better than nothing. Sometimes loose lips sink ships and I'll get the actual price. Not often, but sometimes it happens. On the other hand, if I am on the receiving end of this type of conversation, I divulge nothing without your express permission.
If a home that is comparatle to yours is listed and goes under contract in 10 days or less, the offer can be presumed to be close to list or even above list. That is, of course, very useful information to help accurately price your home.
If a home has been sitting on the market for 8 months without a price reduction, and an offer is finally accepted and the home goes under contract, it is usually going to be at a price significantly below the asking price. Again, I will try to get some information through a conversation with the listing agent.
6) Sale-to-list ratio
If a house is listed at $100,000 and sells for $95,000, the sale-to-list price ratio is 95%. The home sold at 95% of its list price. It is useful to run a calculation on all the homes in the neighborhood to see what the typical sale-to-list price ratio is. That will tell you the typical buyer thinks his discount is going to be.
In some towns, agents intentionally price homes to start bidding wars. This is popular in Montclair, for example. Over the last 12 months, the sale to list price ratio in Montclair has been 103.7%. Meaning, the typical home sells at 3.7% OVER list price. Many of these homes experience bidding wars, but its really "engineered" with below market list pricing. That is a popular tactic with the agent community in Montclair Twp.
In Roxbury Twp. the typical sale-to-list ratio is 98.6%. So homes are selling fairly close to list.
Another related factor is inventory levels. The inventory level for a town is the number of months it will take to sell everything on the market. This is based on the rate of sales over the prior year. So, again using Roxbury Twp, there were 328 sales last year. And there are 77 homes presently active. So divide 77 by 328, then multiply by 12. The result is 2.8. So inventory levels are at 2.8 months. It will take 2.8 months to sell the existing inventory based on the rate of sales activity over the past year.
A normal market is considered to be about 6 months of inventory. So Roxbury Twp is a hotter than average market with 2.8 months of inventory and appreciaton of 7% over the past year.
7) Market adjustments
The first part of pricing your home is looking at the overall market. Items 1-6 above have been mainly concerned with these "external" factors. Once that is completed, we start to look at factors specific to your home. Examples include such items as condition, location, features such as air conditioning, finished basement, pools, patios, extras such as generators, fireplaces, alarm systems, solar panels, etc. We assign values to each of these factors and compare them to other recent homes that have sold. This process is technical and I will explain how we do it when I meet with you prior to listing your home.
8) Seller motivation
How motivated are you to sell and how quickly do you want the process to be completed? If you have a specific time frame or a time-sensitive goal (for example, a new job in another state), then you will be more motivated, and you will probably be more aggressive with respect to your pricing. You will price very close to the final selling price that is indicated by the comparable sales. If there are no pressing issues and you have time to test the market, you will list a little higher and wait for a more motivated buyer. So, the differing levels of motivation will create a range of possible list prices. The range is still pretty narrow, however. Buyers are looking for a good value, and that will limit how far you want to stretch your list price above what other homes have recently sold for.
9) Short sale
If the selling price minus commission is less than what you owe on your mortgage, you are what we call "short". If that happens, we will have to explore what is known as a short sale. A short sale takes place when your bank agrees to take less than what it is owed upon the sale of your home. This is a complex topic and we will go over it in detail if this is your situation. You might be close to being short but not quite sure how close. Call me in that case and I will perform an in depth analysis of your value. Then we can formulate a strategy.
10) Renegotiations after contract
It is typical following going into contract for 2 things to happen that could alter what you will ultimately net from the sale of your home.
The first is a home inspection. In today's market, buyers will usually attempt to renegotiate the selling price if the home inspection shows defects that could not be seen prior to making the offer. For example, if there are discoveries such as a cracked foundation, or mold in the attic, or a chimney problem, or a broken or very old furnace that is on its last legs, the buyer might attempt to have you repair those items or issue a credit. If you refuse, which you can, then the buyer can give up and buy the home anyway, or back out of the deal.
The second is the appraisal. When a buyer applies for a mortgage, the bank will send out an appraiser to estimate the market value of your home. If the value comes in below the selling price, most buyers will try to renegotiate the selling price to the appraised value. Again, you can refuse, in which case the buyer will either continue anyway, or back out of the deal using the mortgage contingency.
In either case, I will handle the negotiation and we will attempt to figure out a compromise. Both sides will usually be moderately unhappy, but both sides will move forward and on to the next chapter of life.
So pricing your home is quite a complex undertaking. There is a lot to consider. My appraisal background and strong communications and negotiating skills will assure you of achieving the most positive result. If you have questions on any of this, give me a call and we can go over it in more detail. My cell phone is (914) 588-3787.
Price Part 1
Price Part 2