I tell my selling clients all the time – finding the buyer is actually the easy part (although it has gotten to be a tad more challenging in the past year).  The hard part is keeping the deal on track and getting it to the closing table so a seller can actually maximize that equity.

Just try cashing an “offer” at the bank.

It’s that expertise in managing a deal that truly defines the value in the listing expense.  Sure, marketing costs money, nowadays lots of it.  But marketing (or MLS exposure) alone is not going to get it done.

Why this discourse?

I subscribe to a local real estate “forum” where folks post ideas, comments, deals, etc… I find it amazing that people will turn to anonymous posters – with varied agendas, experiences and perspectives – for advice on how to handle contract negotiations. Earlier this week, an email to the anonymous group was peppered with…

“Is it feasible…”
“Do any of you folks have suggestions for me…”
“I have a plan on counteroffering. Open to your ideas and experiences!”
“Any suggestions would be greatly appreciated!”

Seriously.  These are actual statements.  From a seller who had the house “listed”, but had no/limited “representation”.  And this level of uncertainty is at the offer stage… what happens going through contract negotiation of terms and conditions, disclosure, inspection, underwriting, appraisal, title, escrow, etc…

Look, don’t get me wrong, I don’t fault someone for trying to save money, especially in this economy. But the premise of penny-wise and pound… well, you know the one I’m talking about.

The offer was $70,000 below the asking price.  I’ve talked again and again about whether this List Price was even correct to start with. But regardless, with that type of discrepancy and that level of uncertainty, the money spent of securing solid, experienced representation of a seller’s best interest in a transaction of this magnitude can not be undervalued.

But hey, I’m smart enough to admit I may be a tad bit biased in my viewpoint.

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I’m talking, specifically, about those two words sellers fear and buyers expect “Price Reduced”.

It doesn’t HAVE to be that way though.  I’ve recently had the chance to dig deep into some data.  I did a dissection of some Real Estate stats from the Vancouver, Clark County real estate market during September, 2008 that puts a huge exclamation point on the old adage “Priced right is half Sold!”

I took a detailed look at the sold Single Family Residential homes in September, 2008, specifically looking for correlation between Sales Price and Days on Market.  The results were nothing short of startling.

Of these sales transactions, 27.4% sold in less than 30 days,  I found this to be a surprisingly high number, based on the current state of the market.  Additionally, nearly one-third (32.7%) of the transactions took 100 or more days to sell, a number I thought would be higher.  But then I remembered: this data was based on the now-modified concept of “Current Days on Market” – which only defined market time based on the most recent active listing for that property (vs. Total or Cumulative Days on Market – which is, get this, based on the cumulative days on market…). Anyhow, I recently dissected this change and what it means to time on market.

More to the point, however, was the Pricing aspect of all this.  Get this:

Of the homes that sold in 30 days or less, the Sales Price was, on average, a miniscule 0.44% discount to the original asking Price… in other words, over 99.5 Cents on the Dollar to their asking price. Wow.

But, as always, there are folks who start out high, hoping for the best, before the reality of the market pulls the rug out from underneath them.  Of the folks who sold with a “Current” Days on Market time of over 120 days, their selling price was, on average, a whopping 14.61% drop from their original asking price.  And with an average current DOM for these folks of 193.3 days (yes, almost seven months)… well, I bet they wish they had just priced it right to start with.

Again, it seems a house – priced right – is half sold. Especially houses for sale in today’s Vancouver and Clark County real estate market. Assuming you had already eliminated dart-throwing or pulling a number out of a hat as the best way to price a house for sale, for more in-depth analysis and a well-thought out selling strategy I know a guy who can figure out how to put two halves together and get a house sold.

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Recently, we noticed some real estate listings that simply looked too good to be true.  I mean, I realize short-sales are all the rage, and there have been some screamin’ real estate deals for smart buyers out there.  But the “List Price” on some of these left me scratchin’ my head and searchin’ for my checkbook.  (Right, like I could have done any damage with the latter of the two, but I digress).

First, some school: List Price is defined as a published or advertised retail price of something that can often be discounted by the seller, or a basic published or advertised price, often subject to discount, or even the price at which a product is usually sold to the public.

In all of these definitions, it is an established price, and for the most part, one which a buyer can assume is somewhat negotiable.  Of course, normally – and especially in this market – one would assume the negotiations could generate a reduction from the list price. But there’s the rub. In a questionable marketing ploy, some listings seem to have been priced to simply generate buyer leads.

Sure, there have been real, stupid-cheap real estate deals out there (usually with some big strings attached), but in some cases, listings seem priced simply to pull buyers out of the woodwork, with no true intent to sell at that price.

Well, now according to the MLS for Vancouver, “Listing a property at a lower price than what your seller is willing to accept is a violation of RMLS™ Rules and Regulations (see section 8.5).  Properties listed for less than the seller will accept obviously attract attention because they are literally too good to be true.  Enticing buyers with false information is unethical.” (emphasis mine).

Good. The last thing we need is bait and switch, loss leader tricks in this business. From now on, when you see that house on Craigslist, priced tens of thousands below market value, think twice, and then give me a call or shoot me an email… we’ll get the real story, and you won’t have to worry about being fodder for P.T. Barnum’s historical phrase. (which, by the way, did you know he never actually said…)

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As the wonder of the Christmas season comes upon us, we are reminded of the simple gifts we look for.

Peace on Earth, Goodwill toward Man (and Woman, of course) and maybe a buyer for this wonderful Greenbelt home in Lakeshore. OK, that last part might be a little selfish for the season, but you get the point.

Anyway, with 4,470 homes on the market and, lets see, count ‘em, one, two, uh, three… um, six buyers, its a far cry from the go-go days of 2004. Of course, a majority of the agents in the business here locally weren’t even licensed in 2004, but that’s a rant for another day. Nonetheless, my exaggeration(s) notwithstanding, there are Buyers out there. I know, I am fortunate enough to have a couple of them (and I am NOT telling anyone where I have them hidden).

In a recent moment of nostalgia for those gory glory days of 2004-05, I recently had a Buyer (yes, Virginia, there is a Santa Claus) sit down to write an offer on this adorable ranch home over on the east side. We are discussing comps and price points and timing and negotiation and strategy and, well, stuff. The house has been on the market a whopping 50 days or so, a proverbial New-York second in this selling season of this year. It did recently have a price reduction (now there’s something different, NOTE: sarcasm alert!), which brought it in line with my Buyers starting point for negotiation.

In an effort to extract some additional concessions clarify some basic pre-offer information, I call the listing agent. At this point. it all starts to get a little fuzzy, but here’s my take on it. First, we must have had a horrible phone connection, because I could swear he said that they had just finalized a signed-around offer. Certain that it was the call quality, not my hearing, or -gasp- the truth, I did what anybody would do in that situation… I hung up and called back. Unfortunately, the technology was fine, the house had…wait for it…patience…here it comes… an “accepted offer”. Wow.

Now I remember the multiple-offer days of lore… remember historically 71.4% of my business is on the Listing side, so I know what it’s like to be part of the “sorry, we have another offer (or two)” conversation. Many of those, in the day. Ahhh. Oh. Sorry, was getting all misty-eyed there. Must be the dust.

I actually have a point (enough with the Bronx cheer, already). Point is, there are Buyers out there. Really. I know there are sellers who doubt the validity of this theory about now, but even with the number of transactions down sharply, this house sold and had other potential buyers, because it was A) priced reasonably, (although it did need one reduction to get there), and 2) was impeccably staged. Really. The house was relatively small for the price, but the statistical analysis of those comps were ignored (at least by my Buyer) relative to the staging, the creation of the atmosphere of home, that this house had. I have talked before about pricing and staging and the fact that only the best deals are getting done. “Best” in this case, and many others, is defined in subjective terms.

I give kudos to this seller and their agent for positioning the house to sell. However, I am certain that Santa would have preferred the transaction to have included my Buyer. Now I have to figure out how to explain this to Virginia.

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Out of the hundreds of transaction sides I’ve been part of in the last ten years or so, I have seen my share of those houses where I scratched my head, thinking “THAT sold?” Well, in many cases it was a function of the market.  Economics 101.  Supply and Demand.  Exotic, WTH Mortgages.  That kind of thing.

So, as we pop a couple of Tylenol and suffer through the housing hangover, today’s sellers are paying for the “party”.  I remember pulling some stats from year-end 2005 that showed almost 84% of my listings had sold over the prior two years.  Simply stated, failure was not an option.

That brings me to this Absolutely Fantabulous home over on the eastside.  We recently took it off the market, with the sellers wanting to enjoy Halloween, Thanksgiving and Christmas, without the burden of trying to live in a “can I show your house in a half-hour?” mode.  We’ll try again after that major February holiday… Super Bowl Sunday.

Anyway, I promised them I would take a “Post Mortem” look at what happened.  Being a stats junkie, and a little OCD on the side, I really wanted to see what happened.  Below is a copy of the note I sent to them. I have pulled personal details out of it, but felt the analysis would be of benefit to all my clients, as well as others currently working through the “morning after” effect.

Hey y’all,

As promised, some “post-mortem” stats and thoughts.

First, I wanted to see how we did vs. the competition. I took a look at all the listings that came on the market the same time we did to see how they had fared.  Of the comparable homes, (325-400K, 4BR, east side) only 28.6% had sold as of when we withdrew our listing. Of the balance, 50% of those were still active (or Bumpable, etc…) and 50% had just given up (withdrawn/cancelled).

Of the ones that did sell, they sold on average in 101.5 days, at a price that was 98.8% of “last” asking price, but more importantly, that sales price was only 93.3% of the “initial” asking price. (Or an approximately $24,000 reduction on a $360,000 house).

Additionally, I wanted to summarize some of the notes I have regarding feedback. In general, almost everyone loved the house. And they were especially complimentary of the condition. The only “negative” I heard was that one buyer hated the configuration of the corner lot. Go figure. As far as constructive feedback, the most common theme was a lack of upgrades… specifically flooring (e.g. hardwoods), countertops (e.g. granite) and fixtures (e.g. jetted tub). Buyers who wanted these generally also had the ability to go higher in price and did so, with a couple writing offers on Maple Crest homes.

We seemed to have been in a “no mans land” between price and features, which created a tough selling proposition. The house, its current amenities, condition and location warranted a price higher than comparables in the low 300’s, but the lack of upgrades precluded us from competing with those in the high 300’s. And unfortunately, we felt the burden of the contraction of the overall market when we did have that signed around offer in the first three weeks, but those folks couldn’t find a buyer for their place. The domino effect then comes into effect.

At this point, I would say we regroup for the winter, maybe do those couple of things we talked about to the house if you are so inclined, and look to early February to try again.

In closing, I want to say thank you again for the opportunity to assist you in your goal of selling the house. I tried extremely hard to make that happen, so I am truly disappointed that it didn’t come to fruition. Please let me know how I may of any further assistance. And as always, never hesitate to give me a call or shoot me an email.

Have great day and God Bless,

Mitch

Bottom line, this was a fantastic house, in a great location and priced appropriately (evidenced by the fact that we did receive two offers that failed to close)… and it still failed to sell.  The data were staggering.  We’ve gone from about 6 out of 8 houses selling (overall market stats from the same period I referenced earlier) to almost 6 out of 8 houses failing to sell now (based on this comparable).  Amazing.

As I have said before, houses will continue to sell, but it will only be those that are priced right, marketed aggressively and diligently managed throughout the process.  If you are on the market now, or looking to be on the market soon, remember this: numbers don’t lie.  Make sure your agent is doing everything possible to position your house for a successful sale… anything short of that would be, well, a crime.

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Anyway, sometimes this numerical obsession actually comes in handy. I’m not sure if you have noticed but there have been a couple of price reductions recently in the market (sarcasm alert!). While out looking at houses the other day, a buyer client asked me the most basic, simple, yet incredibly appropriate question I had heard in a long time.

“If the sellers were going to have to eventually drop the price this much, why didn’t they start out with a more realistic price?”

Ah. The $64,000 Question (recently reduced from $67,900, by the way).

I could have waxed and waned about the seller’s unrealistic expectations, or the possibility that the agent had failed to properly advise them on the current, shall we say, pricing pressures in the market, or, who knows, maybe the agent just “bought the listing”. (Nah, that NEVER happens).

But I refrained from mounting the portable soap box (I carry one in the trunk specifically for these occasions) and instead explained to my client that these things happen. I assured her that we would unquestionably be evaluating our purchase/offer options based on our analysis of the homes value, regardless of how much of a “deal” it looked like after the serial price reductions.

While she was satisfied with the answer and my assurances, the question nonetheless remained ingrained firmly in my brain, bouncing relentlessly back and forth between my two remaining brain cells. I had to research this, because, hey, it likely included some variation of stats. Woo hoo.

So off to the database, spreadsheets and refrigerator I went. Determined to create an answer, THE answer, as to why a seller shouldn’t just start off priced high and come down “someday”.

The following chart shows the correlation between initial pricing and final sales pricing, with an analysis of corresponding time on the market. It is the product of a couple of hours of research and a few cold brews. Any inaccuracies should be addressed to the boss.

In a nutshell, these stats were based on homes that were: 1) priced within ~20% +/- of the Median Home Price; and 2) SOLD in the month of August, 2007. Obviously these numbers would be significantly skewed (and NOT positively, mind you) if we were to include all listings that didn’t sell too. But that is another post altogether.

Bottom line, if you actually want to sell your house in a timely manner, this data says it CAN happen, even in this market… but initial pricing is critical.

For those looking for the simple interpretation of the chart:

Sellers who priced their houses right to start (or close to it, as defined by a final Sales Price of at least 98% of initial List Price) sold relatively quickly, on average 39 days. Those who started high and finally sold their house on a reduced basis (defined as a Sales Price of less than 95% of initial List Price) saw the process drag out to 108 days (or almost three times longer). Again, these are successful sellers; the numbers would be waaaay (sorry for the technical jargon) worse if it included all those that failed to close.

There you have it. Now, if you’ll excuse me, all this dry reading has necessitated a thirst-quenching cold one… we’ll see what kind of chart that leads to.

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