This is purely anecdotal and hyper-local.

A lot of home sellers that have plenty of equity in their home are starting to “Just Say No” to ridiculously low offers or outrageously nit-picky repair requests from would-be home buyers.

This is a good thing.

You see, there are puh-lenty of foreclosed homes and short sales (which should really be called “forever” sales since they take forever to close) and some of those homes are being sold at fire sale prices.  Bargain basement. The “good deal”. People who have equity in their homes are being realistic about the current market and, more importantly, the current market value of their home.

It Doesn’t Pay to Wonder Why The Seller Is Selling

It doesn’t matter what they paid for it in 1982.  It doesn’t matter if they’re selling to take a job, get divorced or pay medical bills.  At some fundamental level the reason people sell their house is because they….want to sell their house and use the money for the next phase of thier life.

By offering a price that is significantly lower than the list price, home buyers only manage to insult the home seller and cause them to dig their heals in even more.  Even if the home owner accepts a low price, the home buyer who then nit-picks the home inspection items will almost certainly piss the seller off to the point of killing the deal.

A Good Deal Is A Good Deal, Learn To Recognize One When Your See It

Admittedly, the home buyer wants to buy the house for the least amount possible with the least amount of repairs.  Yet, after negotiating a low price, closing costs and a home warranty it may be time to pause.

Recently, I’ve had the pleasure of representing two separate home owners who have stood their ground when the home buyer pushed too hard.  They both killed the deal.  Luckily, for one another buyer was waiting in the wings ready to step up to the plate and make the purchase.  The other one is willing to wait until the right offer comes along.

Here’s the moral to this story.  Yes, it is still possible to get a hell of a deal on a decent house in the neighborhood you want to live in.  It is even possible to get a killer interest rate so your monthly mortgage payment is actually pretty darn low. However, you can only push so hard until the seller with equity and the ability to make a decision without consulting a bank says “No More!”.

My wife, Jan, tells me sometimes that I have selective memory.  Usually, it’s when we’re discussing something that involves me saying, “Don’t you remember when I said…”  Of course, she doesn’t remember. Or, more likely, she doesn’t remember it exactly the way I do.

This happens all the time with events like when we met the love of our life and what was going on at the time or when we bought our first home and what that was like.  We like to remember the good parts and block out the not-so-good parts.  This happens when we go to sell a home, too.

My Neighbor Sold Their Home For A Gazillion Dollars and It’s Not As Nice

OK.  Even if your neighbor’s home isn’t as nice as your home.  Even if you’ve heard the rumor that he sold it for a ton of loot awhile back.  That has nothing to do with what’s going on in today’s market with today’s home prices.  If only it did.

The challenge Realtors have with a lot of Sellers is that they not only want to keep up with the Joneses by buying what the Joneses have (only a little better) they also want to make sure when it’s time to sell their home that the Joneses didn’t get out at the “right time” while they’re stuck “giving it away.”

People also tend to romanticize the past.  They think of it in fonder terms than it actually happened…or worse.  They may remember that homes were selling for a lot of money in their neighborhood.  They just don’t remember, quite, that it was about five and a half years ago.

That’s right.  Five and a half years ago. That was the top of the market.

Toward the end of 2005, home prices stopped rising at the astronomical rate they were rising.  Homes stopped selling within hours. NINJA financing (No Income, No Job/Assets) was starting to dry up. By 2006, it was over.  Home prices started to tumbled.  All but the most traditional, well documented financing disappeared.

In other words, the party was over.

I Want Mine

It’s natural to want a piece of the pie everyone was eating.  It’s a bummer to be the one who got in late and now needs to get out.  You’re not alone.  That’s why it’s such a challenge for Realtors to have a heart-to-heart with home sellers about the true realities of today’s market place.

No matter how you remember the past, it doesn’t have an effect on the present. Mr.Market is tough.  He’s brutal.  And he doesn’t look back wistfully and say, “Sure.  You can sell your house for 2005 prices.  No one will notice.”

Remembering that your neighbor three doors down made a killing and forgetting that the guy right next door just had to do a short sale or go to foreclosure is selective memory and it is a surefire strategy to make sure your house never sells.

Remember —

…when they [home sellers] choose the asking price, they’re not choosing how much they’re going to get. They’re choosing how long they’re going to wait to get what they’re going to get anyway.

While it is true that every real estate transaction is uniquely different, it is also true that there are aspects to them that are surprisingly uniform.

For example, there are many reasons that home sellers want to put their home on the market. Yet there seems to be common themes about setting the list price of their home.  One such theme is:

• “I need to recoup the cost I paid for the house.” coupled with “I need to recoup the costs of what I put into the house.”

Usually this is the reasoning home sellers use if they bought the house within the last 6 to 8 years.

In other words, they haven’t owned it long enough to acquire any equity and, depending on when they bought their home, it might have actually lost value. Alternately, home sellers that have made some improvements such as an updating kitchen, finishing a basement, putting in a new deck…whatever, may want to recoup the costs of the improvements.

Mr. Market Doesn’t Care

The sad fact is that the market is what determines the price of the house.  Not what a home seller may have paid for it.  Not what a home seller may have “put into” the house.  The only thing that will determine the true value of the house is what a buyer is willing to pay for it and what a licensed appraiser is willing to say it is worth for the mortgage company.

Using the “What I paid for it. ” and the “What I put into it.” line of thinking would suggest that people who bought their home 20 or 30 years ago and dutifully paid off the mortgage should sell it for maybe a little more that they paid for it in 1985.

Such a deal.

And as far as sinking money into the house?  Isn’t a mortgage payment something a home seller “puts into” the house.  Using that line of thinking, the list price should increase monthly until someone buys the house. We all know that doesn’t happen.

Hope Springs Eternal

Of course, the home seller is really hoping they can get some made up price based on their own purchase price or the cost of improvements.  Unfortunately, it just ain’t gonna happen.

What is going to happen is that the home will sit on the market for an extended period of time until the home seller realizes that Mr. Market doesn’t care what they paid for either the house or the improvements.

As I mentioned in a previous post about home pricing:

…when they [home sellers] choose the asking price, they’re not choosing how much they’re going to get. They’re choosing how long they’re going to wait to get what they’re going to get anyway.

There was a time, back in the day, when condos were a “good deal”.  The weren’t too high priced (depending on where, of course) and the maintenance was next to nothing.  You could drive up, park the car and enjoy a relaxing evening of TV or cribbage. You could go away on the weekends without ever having to worry about cutting the grass.  Forget about big ticket items like a roof.  The condo association would take care of it for you.

Today Condos Are The Last Resort

It’s hard to say why, exactly, condos have become so hard to sell.  Of course, for a lot of condos, the monthly fee has risen so high that it’s almost like a second mortgage payment.  It’s also true that in many condo communities (especially in Prince George’s County) the aggregate condo fee delinquency is high and the renter-to-owner ratio is high.  Both these factors make lenders very fidgety.

They’re afraid that if they lend money to people moving into these condo communities that:

• the physical buildings will deteriorate as the result of the condo association being a little short on cash to keep up with the necessary maintenance and upkeep and,
• since renters typically don’t pay the condo fee directly (it’s usually factored into the rent and the actual owner pays it) there is the possibility that the absentee landlord won’t pay the condo fee. Plus, renters just don’t have the same emotional or financial investment in keeping the place up.

Are Condos Un-Sellable?

These two reasons combined with the overall decline in home prices — condos have been hit the hardest with the price declines — leave a lot of owners without the equity they need to sell and potential condo buyers without access to the financing they need to make the purchase.  It turns out to be a vicious cycle.

This is not to say that condos can’t be sold.  It just means that condo owners need to realize that high prices and poor condition will make matters worse.  Some of this is out of the control of individual condo owners.  However, what they can control, they should.

In a down market the reason a house doesn’t sell is not always obvious.  If the price is competitive and the condition of the house is good there really isn’t a good reason it shouldn’t sell.  Of course, the real challenge is getting the potential home buyers into your home in order to get that “I-could-live-here” feeling.  Sometimes price alone doesn’t help.

Even with the Internet, virtual tours, and all kinds of other information at a potential home buyer’s fingertips they still, for some reason, never put your home on the “I-want-to-see-this-home” list.  Many times they may be guessing at what their monthly payment would be or they may not know much about a certain neighborhood.  That’s where a professional Realtor comes into the picture.  A good buyer’s agent would provide the kind of information about neighborhoods and payments and all kinds of other stuff that may not be readily available on the Internet.

Would it be a good thing to try and entice the Realtor into putting your home on the “Let’s-just-take-a-quick-look-at-this-home” list in the hopes that his client — the home buyer — might just think it’s the place they want to buy?

Let’s be blunt.  Any Realtor who takes his job seriously and is looking out for the best interests of his buyer client will show the home buyer any and all homes that match the home buyer’s stated criteria. Added financial incentive shouldn’t play a part.

But it does.

In these hard economic times, Realtors that are still in the business are working twice as hard to put food on the table and keep up with their own mortgage payment and other expenses.  If there is a chance to make a few extra bucks, a lot of Realtors will go for it.

The Key Is To Keep The Home Buyer’s Interests In Front

I’ve never been a big fan of the buyer’s agent bonus.  I would prefer that the home seller reduce the price of the home.  It makes the home more competitive and it directly benefits both the home buyer and home seller.  However, when the price has already dropped to the bargain basement and the house is really in decent shape and it’s being marketing globally on the Internet and everywhere else, an agent bonus might do the trick.

The important thing is to let the buyer know that there is a bonus being offered on a particular property so that the buyer will be able to make an informed decision.  It’s still alright, in my view, for the buyer’s agent to point out all the positives of the house.  Quite frankly, Realtor compensation should be irrelevant to a buyer’s decision if they really, really, like the house.  However, I can understand that some people would feel that an agent might be “pushing” House A over House B as the result of the agent bonus.

Do You Trust Your Agent?

An important aspect of any relationship is trust and, hopefully, there is a little bit of trust in the Realtor/Buyer relationship as well. The Realtor should trust the buyer to make a good choice that’s good for them and the buyer should trust the Realtor to provide professional advice during the home buying process.  If that trust is there, the bonus shouldn’t be a big deal.

It might be a big deal to the home seller, though, because it might just be the thing that brings that one buyer (and you only need one) into the house who will love it and want to purchase it.

Do you think a buyer’s agent bonus is a good idea?

Everywhere I turn nowadays, I hear that real estate is on the rise.  Well, OK, not everywhere.  Not on the news. Not in the real estate blogosphere (known as the RE.net). Not from statistical analysis. Not from the National Association of Realtors.

Everywhere else, though.  People on the street.  My barber mentioned that real estate was getting better…wasn’t it?  Potential seller clients (always optimistic) tell me that real estate is getting better…isn’t it?  People at my church tell me real estate is getting better…right?

Sure.  If you say so.

Saying So Doesn’t Make It So

At some level, if you get enough people to talk up a particular topic whether it’s the real estate market, the stock market or the latest mystery thriller on Amazon, that thing will go up.  This is what stock market speculators do.  They buy a stock, send out rumors and whispers on the Internet and through all the other channels that people think have authority and, voila, the stock price goes up, the speculators dump it and everyone else is left with a dud stock.

If enough people start to talk up the real estate market, it might actually go up.  But not for long.  With a  huge amount of inventory (i.e., homes on the market available for sale) there is no way that prices can rise.  it’s simple supply and demand.  There is a ton of supply.  Virtually no demand because of the horrendous mortgage environment.  So, unless your home happens to be in one of the pockets that are doing well because of the geographic location, you probably won’t actually see any movement.

What Needs To Happen

Now that the Government has stopped stimulating the housing market (i.e, the tax credit is gone).  We need to get the banks to loosen up credit for mortgages.  I don’t suggest that they start lending to anyone who can fog a mirror like they did in the old days. I am suggesting that there are quite a few financially qualified buyers that are looking for homes to live in and quite a few financially qualified real estate investors looking for the bargains they can snap up, rehab, and re-sell.  It’s time to provide the capital to allow these “players” to get into the market and reduce the housing inventory.

Once the number of houses available for sale has been reduced significantly, prices will stabilize and even begin to rise, again.  Not at 25% per year like the good old days.  That bus has left the terminal.  Maybe somewhere in the neighborhood of 3% to 5% per year.  Still, that will be enough to turn a home into a retirement nest egg as well as a nice place to live with heat in the winter and cool in the summer.

In my career, most home sellers I engage with want one thing — the absolute most money possible from the sale of their home.  This is not a bad thing.  After all, there is usually a huge emotional investment in the home as well as substantial physical improvements (maybe).  If the home seller has owned the home for a long time, there is alos at least some price appreciation.

None of that means that home sellers can make up a number and sell it for that price. Yet, this is what many home sellers want to do.

• “I want to price my house at $425,000 for awhile to see if I can get it.”
• “Let’s try it at $425,000 for awhile and then talk about lowering it, if we have to, in a month or so.”
• “My neighbor sold their home for $435,000 so I know I can get $425,000.”

There are dozens of variations on this theme and the whole point is this: the home seller doesn’t want to believe that the price being recommended by the Realtor is the market value and what the home might actually sell for.

Beginning The Slow Descent Down, Down, Down

Thus, begins the infamous and notorious “stair stepping” of the list price.So called because the home seller slowly but surely lowers the price little by little until it gets to the point someone buys the house.

• Step 1 – full list price
• Step 2 – usually between $5,000 and $10,000 less
• Step 3 – more
• Step 4 through Step SOLD – down, down down

The reason this strategy is so faulty is two-fold:

1. It keeps you home on the market a lot longer then it needs to be and potential buyers begin to wonder whats wrong with it,
2. Potential buyers (and their buyer’s agents) notice the price change history and see the constant downward trend and may either low ball the price or wait until the next price reduction.

Both factors will result in the home seller obtaining a much lower price than if he had priced it aggressively right out of the gate.

Hope and wishful thinking combined with bad word-of-mouth from the neighborhood will only result in an extremely long selling period and a much lower final price.

Nikki Smith of Federal Title and Escrow read my previous blog post about pricing your home to sell now or sell later.  She offered up a great article from the Wall Street Journal which reinforces what most Realtors tell their home seller clients all the time:

If you price your home aggressively you may actually get multiple offers resulting in a higher price.

The great thing about this article is that it provides an objective, third party report of something we Realtors have known for a long time.  Of course, when home sellers hear it from their Realtor, they think, “They just want to sell it quick to get their commission.”  That couldn’t be further from the truth.  Most Realtors want to provide  a valuation for your home that is based on reality and on the possibility it’ll sell  sometime before they retire.  After all, “selling a home” is what we do and a high price only throws a roadblock into the process.

As The Wall Street Journal suggests, if you price aggressively, home buyers will sit up and take notice and visit your house.  If it’s a “good deal ” (i.e., not priced like every other house like it in the neighborhood), the home buyers know it, their buyer’s agents know it and it could result in a bidding war that will allow home sellers to pocket more cash.

Many thanks to Susan Pruden of Century 21 Home Center for this great nugget of wisdom.  It is so true and yet almost universally ignored.

A wise realtor once told me that if you’re not getting offers, and not enough people are showing up at your listing, then the good news is you have two options: 1) Lower the Price, or 2) Lower the Price. But at least you have options!

And furthermore, make sure your sellers (and you) know that when they choose the asking price, they’re not choosing how much they’re going to get. Their choosing how long they’re going to wait to get what they’re going to get anyway.

You really don’t have to keep your home on the market for an extended period of time.  If you want to sell your home, be realistic.  If you really don’t need to sell your home right now, then keep it off the market.  There are way too many homes, including foreclosures and short sales, that will distract financially qualified buyers from looking at your home if it is priced too high.

In my last post about home buyers I outlined some of the things that home buyers need to have before they begin their quest.  In this post about home sellers, you may be surprised that some things are the same but for different reasons:

1. A Realtor

On the home selling side of the real estate transaction there are two choices:

1. Using a professional Realtor to consult with you about price, condition, staging your home, the market, legal disclosure requirements, access to your home by potential home buyers (and their buyer’s agents), negotiation of terms, coordination of the various players (appraiser, home inspector, lender, title company, etc.), understanding the home seller responsibilities and understanding the home buyer responsibilities once a Contract of Sale has been properly executed…and more,
2. For Sale By Owner — do everything yourself.

2.  Professional Home Staging

This can be done by you or it can be done by someone who does it for a living.  A lot depends on how good you are at looking at your home, objectively, and deciding what needs to go into storage, what needs to be thrown out or given to charity and what can be re-arranged to make your home look like Martha Stewart just came by for a visit.  Statistically, homes that have been professionally staged sell faster and closer to the listed price than homes that, er, looked like they do every day of the week.

This is the second hardest thing to talk to a home seller about after talking about price because the home seller really likes the way things look.  After all, this is how he or she or they live and it has that nice comfy feeling for them.  The thing is that if you’re going to sell you’re home it means that you are moving out and away and you really need to make the home look like a picture from a magazine…and keep it that way until it sells.

Take it from me. If you get a professional stager into your home to make it look nice and you price it competitively you won’t have to worry about picking up the dirty laundry of keeping  the dishes out of the sink for long.  Staging doesn’t cost.  It pays.

3. Time

Unlike the time I wrote about on the home buyer’s side of things, this concept of time has to do with coming to grips with the fact that unless you price your home competitively and keep it in move-in condition, it may take several months to sell.  It’s just that kind of market.  I talk to home sellers all the time who tell me, “I really don’t need to sell right away.” or “I have plenty of time to sell.  I don’t need to move.”  My advice to these potential home sellers is: don’t put your house on the market!

Having your home on the market for an extended period of time, especially if you’re lining in the house, is a horrible experience.  In addition to keeping the place all tidied up, you have people coming through your home at random times throughout the selling period.  You may just be settling in for a relaxing evening with a good book or TV when you get the call that a potential home buyer wants to come over with their buyer’s agent. Sigh.

4. A Good Contractor

When you do get a good offer and you start into the process to sell your home, the home buyer will want to do a home inspection.  Sometimes, they’ll even want to do a radon test and lead based pain test and a mold test.  If anything comes up during any of these inspections or tests you may be asked to make repairs.  That’s where it’s good to have someone you can count on to come in and make the necessary repairs.

Of course, it’, important to negotiate which items you are contractually obligated to address and which ones you can tell the home buyer are going to be his obligation.  That’s what a good Realtor will help with (see #1) but in the case you either want to make things right in order to smooth out the process or you really need to, a good contractor is invaluable.

5. An Open Mind

Selling your home is an emotional process. This is especially true if you’ve lived in your home for any length of time.  You may have raised children in the house, you might know the neighbors well, you may have done some home improvements you particularly enjoy.  However, if you’ve made the decision to sell your home and move onto the next chapter in your life — move to another area, move up to a larger house, move to a smaller, more manageable house or condo or whatever — you need to remember that it’s time to move on.

Holding on to memories or the sentimental value of your home will not help you sell your home for the highest price.  I have worked with many a home seller who resisted a good, solid offer with good terms because they wouldn’t keep an open mind.  They still had the emotional attachment to the house.  This can be very costly and it can add months to the time your home is on the market.  Keep an open mind about any offer that comes in, go over the terms of the offer with your Realtor and make a decision based on what you want to do with your future and not fond memories of the past.

Don’t despair.  Keep your eyes on the prize and your house will sell close to list price a lot more quickly then you thought.