Year-End Pick-Up in Activity

The Limits of Statistics
in Valuing Homes

It's only Wednesday, and I've already fielded three calls this week from appraisers wanting "scoop" on recent, closed sales that I've handled.

A year-end pick-up in deals?

Well, that, too.

However, in each case the appraiser was working on a refinancing application.

To approve the new loan, the lender needed to establish current market value, which in turn means performing an appraisal and identifying/analyzing the Comp's -- just like they would for a sale.

The fact that appraisers need to talk to actual, live Realtors -- who can fill them in on floor plans, updates (or not), and other home features not otherwise captured in statistics -- should give anyone relying on Trulia, Zillow, etc. for home values pause.

P.S.: Time permitting, I'm happy to talk to appraisers. Often times, something I know can be the difference between a deal (or refinancing) happening -- or not.

In an environment where banks are looking for any excuse to shoot down a deal, as a plugged-in, on-the-ground expert, I'm ideally positioned to serve as a counter-balance.

Of course, a healthier, more active market benefits everyone.

Tax Assessed Value as Yellow (or Red) Flag

List Price = $800k, Tax Value = $400k

As I've written previously, a home's tax assessed value isn't particularly relevant for establishing a home's actual, what-will-it-sell-for market value.

Rather, fair market value is determined by: a) scrutinizing the comp's, or comparable sold properties, to set a list price; then b) testing it on the market.

While in theory the tax value should approximate market value, there are all kinds of reasons why they can diverge.

So why do Realtors still consult the tax assessed value?

Speaking for myself, I always check to see if the assessed value appears too low.

Especially if the home hasn't sold recently, that can be a sign that major remodeling was performed without the requisite permits.

If the home has sold recently, it's possible that the appropriate permits were pulled, but that the new tax assessed value simply hasn't caught up yet.

"Why Didn't it Appraise?"

Multiple Choice Quiz

Test your knowledge of today's real estate market, and answer the following question:

Which of the following are to blame when a home does not appraise pursuant to a Purchase Agreement and mortgage application?

(Note: the home being appraised is called the "subject home"; its peers, which establish value, are individually known as "Comp's," or "Comparable Sold Properties").

A. Nearby foreclosures torpedoed the value of the (non-foreclosure) subject home;
B. The appraiser didn't know the area;
C. The appraiser didn't know various negatives associated with one or more Comp's (dated Kitchen, poor condition, bad floor plan, etc.) that depressed their market value.
D. The appraiser was missing the last, fully executed Counter-Offer or Purchase Agreement Addendum -- and therefore was using a too-high price.

Answer: all of the above.

Of the foregoing, the only circumstance that is entirely avoidable is "D."

However, an attentive, hands-on Realtor can also help avert/mitigate "B." and "C." by being proactive.

P.S.: And yes, some homes fail to appraise these days . . . because the purchase price simply isn't supported by valid Comp's.

I'd put that number at 15% or so -- up from 5% a few years ago.

"Did They Really Get $1,500 a Month for That?"

Rentals on MLS

One of the quirks of following rentals on MLS -- available since Sept. 1 -- is that there's no way to track the difference between what landlords are asking, and what they're actually accepting.

Over on the "for sale" side of MLS, Realtors and appraisers alike know to skip homes that are "Active," and instead only scrutinize actual, closed sales (called "Comp's," or "Comparable Sold Properties").

At least so far with rentals, there's no analogous way to do that.

P.S.: after six weeks, the local MLS now has over 300 rentals listed -- a big jump, but still a fraction of what Craig's List has, and a drop in the bucket compared to the 28,000-plus active "for sale" properties on MLS.

Pre-Approval Letters & Written Statements

What Are They Really Worth?

Put it this way: the picture of toilet paper should give you a hint.

First, some background.

In Minnesota, the first things that typically lead off any offer to purchase residential real estate are the Buyer's earnest money check, and a pre-approval letter from a lender (unless the Buyer is paying cash).

The standard pre-approval letter recites that the lender has initially screened the Buyer's finances and credit scores, and, based on that quick review, says that the Buyer can afford the home.

In practice, a pre-approval letter almost always means . . . nothing.

Most lenders will issue them in less than 10 minutes on the phone with a prospective borrower, after collecting the most basic information.

Meanwhile, their express language explicitly states that nothing in the pre-approval letter obligates the lender issuing it to actually fund the loan.

The Written Statement

Which is where the Written Statement supposedly comes in (think of it as "the Final Approval" Letter).

Once the Buyer and Seller reach agreement on terms, the Purchase Agreement typically includes a Financing Addendum that calls for the Buyer to deliver a Written Statement within 2-3 weeks.

The standard Written Statement recites that an appraisal satisfactory to the lender has been completed; presumes that the lender has finished vetting the Buyer's W-2's, recent tax returns, and any other Buyer financial "bona fides"; and lists any outstanding conditions remaining -- usually pro forma ones, like the Buyer not blowing up their credit or losing their job.

Once the Buyer delivers the Written Statement to the Seller, the Buyer's loan is supposed to be finally underwritten -- and the Buyer's earnest money becomes non-refundable.

O-for-2

Except that in practice, that's not how it works today.

Now, skittish lenders can and do reserve the right to revisit the loan at any time up until closing.

They may request additional Comp's to substantiate the value of the collateral (the home being purchased); ask the Buyer for (still) more financial documentation; or tweak (tighten) their underwriting standards.

Or all of the above.

The result?

What was supposed to be a finally underwritten loan suddenly . . . isn't.

All of the foregoing means two things:

One. Buyers and Sellers today, especially when upper bracket properties are involved, should consider drafting custom language to address the Buyer's financial qualifications, and defining when their earnest money becomes non-refundable; and

Two. Sellers shouldn't load up the moving van until they know, for sure, that the Buyer's financing is good.

Spiking the Ball . . . on the 2 Yard Line

Q: When Doesn't "Sold" Mean "Sold?"

Answer: when it means "Pending" (as, when it's in front of a home that's for sale).

Huh?

At least in Minnesota, once the Buyer's Inspection has been removed, the convention is to switch a home's status from "Active" to "Pending" on MLS, and to put a "Sold" rider on top of the "For Sale" sign in front of the home.

That's the case even though the home hasn't closed yet -- and the Buyer's loan most likely hasn't been finally underwritten (or even successfully appraised!).

Of course, that's in addition to any title work still to be done, as well as any other outstanding conditions that the Buyer and Seller may have contractually agreed -- or be subject -- to (repairs, obtaining a municipal inspection certificate, etc.).

Isn't declaring such a home "Sold" like spiking the ball on the 2 yard line?

Explanation/Rationale

It can be.

However, once any Inspection issues have been resolved, the odds of a deal closing go up dramatically; from experience, I'd peg the odds at anywhere from 80% to 98%.

Why the range?

If it's a cash deal and the Buyer is richer than Croesus . . . it's virtually a done deal.

However, especially if the Comp's are thin and the sales price lacks recent, nearby precedent, the risk of an appraisal issue goes up.

Too, if the Buyer works for a company that's been hit by the recession, or is otherwise vulnerable to layoffs, there's the added risk that the Buyer will lose their job before closing (or otherwise suffer a major hit to their "creditworthiness").

Less likely, but still within the realm of possibility, are such things as Buyer health issues, an unexpected job relocation, major damage to the home (fire or weather-related) -- or even a simple change of heart (and mind).

"Pending" vs. "Closed"

So, to repeat, why not put up a sign that says "Pending" rather than "Closed" -- or remove the "For Sale" sign altogether?

My take is that it's a mix of the following reasons:

--Psychologically, putting up "Sold" helps cement the Buyer's commitment (see, "change of heart").

--"Sold" better tells prospective Buyers that the house is spoken for, and not to bother the homeowner.

--Marketing exigencies. Whereas "Pending" sounds equivocal and gray, "Sold" is strong and declarative.

Too, because there is a risk that the house won't close, it's premature to remove the sign.

However, once the risk of not closing is effectively zero, i.e., the Seller has been paid, title has transferred to the new owner, and the "For Sale" is removed . . . there's nothing to attach "Sold" to.

$11,000 per Block?

Putting a Price Tag on

Proximity to Cedar Lake

A client of mine says his engineer son-in-law has done a regression analysis calculating the premium associated with proximity to Minneapolis' Cedar Lake.

His number?

$11,000 per block.

If that's correct, that's a very valuable number to have, because lots of Realtors, appraisers -- and their clients! -- spend a lot of time and money trying to quantify just such variables.

"Ceteris Paribus"

And yet . . . as I discussed in The Art of Doing Comp's ("How Big a Premium for Small Lakefront?"), isolating and quantifying such adjustments is more difficult than it sounds.

That's because it's never the case -- at least outside new, tract developments -- that two homes, identical in every respect but their location, sell at exactly the same time.

To use a fancy term, they flunk the "ceteris paribus" test ("everything else held equal").

So, if the two homes are the same size and style, one's much more updated; if they're equally updated, one's substantially bigger; if they're the same style, size, and condition, they sold two years apart, in different market conditions.

Theory vs. Practice

Which doesn't mean that Realtors and others don't estimate premiums and discounts, for many variables, every day.

It's just that it's more a "gut," judgment call than a hard-and-fast objective number.

P.S.: my number for Cedar Lake proximity? I'd start with 2% per block, but would tweak that depending on which block (some are clearly nicer than others).

I also know that the East part of Fern Hill -- between Monterey and France -- commands a bigger premium than "West" Fern Hill, and that a handful of homes on Glenhurst and Huntington with lakeviews command much bigger premiums.

Scientifically Proven Home Valuation Formula

"Fair Market Value," Defined

I, along with thousands of other agents, have developed a scientifically proven, 100% reliable way of establishing a home's value.

Ready?

Here's how you'll know any given home is priced at fair market value:

It sells.*

Defining "Fair Market Value"

That may seem unduly glib (if not harsh).

Unfortunately, for many as yet unrealistic Sellers, it also happens to be true.

In fact, the foregoing is the very definition of "fair market value."

Until a Buyer appears who's willing to pay a given price, everything else -- the comp's, what your neighbor got, how much you have into your home (i.e., purchase price + improvements) -- is just noise.

*Of course, that isn't meant to let the listing agent off the hook. I'm presuming that the home's condition, appeal, and marketing are already optimal.

"A Tale of Two Pole Barns"

"Fat" and "Skinny" Comp's

Due to the lack of good Comp's -- an issue I've raised repeatedly on this blog -- both appraisers and Realtors find themselves digging for more info on the ones that they do have.

So, I've been fielding more calls than usual from appraisers who want to debrief me on the features, floor plan, updates (or not), etc. of a home I've just sold.

I'm sympathetic, and subscribe to the "you gotta give to get" ethic, so -- time permitting -- I try to be cooperative.

Bottom Line: Less Discretion

Which brings me to the conversation I had the other day with an appraiser working on a refinancing loan.

After giving him some details on the home he'd called about, we discussed his specialty: hobby farms in the west suburbs.

One of the typical outbuildings on a hobby farm is a pole barn, a barn that is constructed with support poles that serve as the underlying support structure for the outer walls and roof (impressed? I looked it up).

Suffice to say that there is a great deal of variety in their size, functionality -- and cost; in fact, according to the appraiser, an elaborate pole barn can easily be worth $25k or more than a simple one.

Nevertheless, spooked lenders now doing everything "by the book" have arbitrarily decided that the maximum adjustment for pole barns is $5k-$10k.

The result?

A hobby farm with a deluxe pole barn is less likely to appraise -- and therefore, sell.

How Much Showing Activity?

One Way to Tell

It's a moot point if your (Buyer) client doesn't like the home, but if they do, and certainly if they're mulling an offer, one of the more important pieces of information to glean is, "how much showing activity has there been?"

That's relevant because it tells you how much (if any) competing interest there is.

Mix that in with a thorough analysis of the Comp's, the nearby Actives, and, of course, how much your client likes the home, and you start to have an idea what a good offering price should be.

All of that came to mind yesterday as I wrestled with the front key stuck in the deadbolt of the home I had just finished showing (it wouldn't budge, so I left it there and called the listing broker to alert them).

Assuming it wasn't just me but a truly sticky deadbolt, the answer to the aforementioned question would be, "not much."

Home Pricing: 'the Tilt Factor'

Pinball Wizard . . . or Dunce?

The analogy is lost on anyone under 30 -- too many electronic video games -- but I like to invoke something called "the Tilt Factor" in pricing my clients' homes.

By that, I mean that it's fine to be aggressive, and pick a price at the high range of what the "Comp's" suggest is fair market value.

In pinball parlance, that's equivalent to jiggling the machine to get the pinball to move a scooch to the left or right.

However, if you overshoot that range -- i.e., shake the pinball machine too aggressively -- you "tilt," and the game's over.

The same's true in real estate . . .

Reason for Tougher Negotations

"What's That House Cost?" -- Vol. #42

Want to buy 100 shares of Microsoft?

If the last trade was for $25.43, it's a good bet that you'll have to pay . . . .$25.43 (or maybe $25.42 or $25.44).

Want to buy a nicely updated, four Bedroom Colonial in East Edina?

That'll be . . . . $950,000. Or maybe $875,000. Or perhaps a cool $1 million.

For the same house.

Defining "Market Value"

Why such a broad range?

Because there haven't been that many recent deals to serve as benchmarks (called "Comp's," or Comparable Sold Properties," as they're known in the trade).

With fewer transactions to serve as precedents, Buyers and Sellers have more ground to bridge to reach what everyone agrees is "market value."

Why Do Sellers Misprice?

Lack of Information & Objectivity

Not all Home Sellers misprice -- or would if their Realtor didn't convince them not to -- but enough do that it begs the question: why?

From my perspective, it's usually a combination of three factors (none of which involve vanity or ego).

One. Lack of information (about the Comp's, or comparable sold properties).

A client of mine last year was adamant that his home was worth more than another on his block that had sold for $40,000 more than I recommended pricing his at.

So I asked him, "Did you see your neighbor's updated Kitchen? The new master bathroom? All the new windows in the back of the house?

Answers: 'no,' 'no,' and 'no' -- he'd never been inside. (Memo to fans of Trulia, Zillow, CyberHomes, etc.: they suffer from the same shortcomings.)

Two. Lack of objectivity.

This one especially comes up with homeowners who haven't moved in a long time.

Anything you look at day after day -- let alone year after year -- gradually becomes . . . invisible.

Once upon a time, when I lived in Manhattan, I had a 35th floor apartment with sweeping views of upper Broadway and the Hudson (at least until a developer put up a new, 50 story building across the street).

Yet after a few months, the only time I really noticed it anymore was when guests would visit and be mesmerized by the view.

Or, after I'd been away for longer than a week and returned, the views once again registered for a few days, before turning back into wallpaper (albeit very attractive wallpaper).

The same phenomenon explains my initial meeting with a client a ways back, as we toured her home.

When we got to the master bedroom, I pointed out a conspicuous stain in the ceiling that I recommended fixing.

"What stain?" was her first, incredulous (and honest) response.

Then a second later: 'Oh, that stain . . .'

(Sidebar: the one exception to becoming inured to one's everyday environment: natural light. At least in my experience, you never get tired of natural light -- or used to its absence.)

Three. Lack of information -- about Buyer tastes, market trends, etc.

Another recent client of mine took umbrage at the (rather deafening) chorus of feedback all zeroing in on the home's dated feel.

The windows, the carpet, the Kitchen counter tops, the color scheme, the home's siding -- and on and on.

The owner had spent good money periodically updating those things and keeping them in good repair, but after 30 years in their home, they simply weren't able to relate to Buyers' comments.

Which leaves it to a Realtor they trust to (gently) tell them -- ideally, before they come on the market.

"We Don't NEED to Sell"

Seller Motivation (and Lack Thereof)

Does "not needing to sell" make your house worth more?

At least some Sellers seem to think so.

Put it this way:

You seldom hear a Buyer, in the middle of a negotiation, say, "You know, we don't NEED to buy."

Yet Sellers, on the other side of the same negotiation, increasingly can be heard to say, "We don't NEED to sell."

Which begs the question: so why are you?

Real vs. Fake Leverage

What that statement is really about is perceived leverage.

If you don't really need to sell (at least the owners' thinking goes), you can hold out for a higher price.

Maybe so.

But that doesn't change the Comp's, which Realtors and appraisers alike use to establish value.

And therefore, that stance is not likely to raise the Seller's market value.

P.S.: By contrast, extreme Seller motivation can certainly lower it.

P.P.S.: As often as not, "not needing to sell" causes Sellers to set (and hold out for) for an unrealistic price, which leads to undue market time, which leads to . . . an artificially low price.

Appraisal Air Pocket

Housing Market Circular Reasoning

The reason more upper bracket homes aren't selling . . . is because more upper bracket homes aren't selling.

Huh?

Once a deal is struck, the lender's appraiser seeks to substantiate the value of the collateral -- the home being sold -- by looking to other, similar homes that have sold recently.

The preferred number is three, within the last six months (more recently, if possible).

But what if there aren't three good comp's?

Increasingly, lenders in CYA mode appear to be filling that vacuum with the most conservative assumptions possible -- scuttling more than a few local deals.

The result is . . . . even fewer upper bracket deals.

That's certainly not the whole story with respect to upper bracket housing -- the tiny little recession we're experiencing, elevated unemployment, a weak stock market, etc. are all contributing factors, too.

However, "appraisal issues" are increasingly exacerbating the problem.

Why I Don't Price Other Realtors' Listings

Real Estate's "Heisenberg Uncertainty Principle"

The observer influences the thing observed.

--Heisenberg uncertainty principle

It seems self-explanatory, but as a principle, I don't price other Realtors' listings.

The issue usually comes up when I do a listing presentation -- essentially, a job interview for Realtors.

In the course of interviewing Realtors, homeowners (and prospective Sellers) naturally want to know how you'll market their home; your qualifications; and what their home is worth.

While I always come to listing presentations armed with the latest, nearby market activity (and am happy to offer a ballpark range), I decline to name a specific price until the homeowner commits to using me as their Realtor.

Rationale

There are four reasons why I take that stance.

One. Time.

Carefully pricing a home (vs. haphazardly) takes a great deal of due diligence.

At least for me, the steps include: identifying and analyzing the Comp's (Comparable Sold Properties); learning the history and condition of the client's home (vs. taking the 10 minute tour after first arriving); previewing the Active listings that the client's home will be competing against; identifying any Pending homes similar to the client's home and estimating what their likely Sold price is; and pouring all the foregoing into a CMA, or Comparative Market Analysis, then crunching the related numbers.

All of the foregoing takes . . . time. Done properly and well, lots of time.

As a Realtor, the two things I ultimately have to sell are my time and expertise.

If I spent undue amounts of time working for non-clients, my actual clients will suffer.

That hardly seems fair to them.

And spending the requisite 6-8 hours carefully pricing a home that another Realtor is ultimately going to list isn't fair . . . to me!

So, I don't invest that time . . until I'm hired.

Two. My price for any given home isn't a fixed number.

Rather, it depends not a little bit on the homeowner themselves.

So, do they need/want to sell quickly, or can they be patient waiting for an offer?

Can the home benefit from staging, strategic updating, etc. , and if so, is the client willing and able to do it?

Does the client want to price aggressively -- and take the risk that goes along with that -- or do they want to price more conservatively?

And so on, and so on.

Three. My price may not be the same as another Realtor's (call this phenomenon "Real Estate's Heisenberg Uncertainly Principle").

Whereas homeowners tend to think of their home as having a fixed, objective value, Realtors (and anyone who knows marketing) understand that the actual price is a range -- a fluid range that is influenced by the skill of the professional(s) involved in the sale.

A home that is optimally staged and photographed, then aggressively and expertly marketed by an excellent Realtor at a top-flight Broker is likely to sell for one price; a home where a less-talented and motivated Realtor simply shows up, gets the requisite signatures, then puts a "For Sale" sign in the front lawn, is likely to fetch . . . another price altogether.

Four. "Buying the Listing."

The last reason I won't casually price a home is because I don't want to get caught up in what Realtors call "buying a listing."

Pretty much what it sounds like, the practice consists of appealing to a homeowner's vanity (or ignorance) by throwing out an unrealistically high price for their home, and thereby beating other Realtors' "bids."

With the listing secured, the Realtor then focuses on getting a price reduction -- or several of them -- when the home proves unsaleable at the quoted price.

Bidding wars are great for Sellers, but not so great for Buyers.

That's true for Realtors, too.

As a prospective listing agent in an already tough market, the last thing I want to do is get into a Realtor bidding war to list what is certain to be an overpriced home.

P.S.: For the record, when prospective home Sellers interview both me and another Realtor . . . they hire me the vast majority of the time.

Did the Seller Leave Money on the Table?

Four Ways to Tell

In the history of mankind, no first-time Mother has ever under-dressed their newborn in the winter.

--Manhattan Pediatrician

So which pediatrician uttered the above line?

Mine (and my wife's).

What prompted that comment were the 3 layers of clothing my wife had already put on our newborn son (this was 10 years ago), coupled with her anxiously asking him whether he thought "the baby was dressed warmly enough?"

What's that got to do with real estate?

I've yet to encounter the Homeowner who thought their house sold for too much.

Money Left on the Table

On the contrary, a great deal of Sellers seem to believe that their home sold for too little.

So, are they ever right?

To help answer the question, here are the four, inter-related variables I'd weigh:

One. How long was the property on the market?

It's hard to argue that any home on the market listed for more than a month -- let alone six months or a year -- sold for too little.

In today's networked, 24/7 world, serious Buyers (and their Realtors) often know about properties before they come on the market.

If a home is a good fit for a serious, prospective Buyer, it's a good bet that they'll: a) know about it; and b) have gotten in to take a look.

Assuming, of course, that the home was on the market longer than 48 hours.

Two. Was the home professionally and aggressively marketed?

My checklist of "To Do's" for Sellers literally has 143 items on it.

Things like, "work with professional stager to the get the house ready; "arrange professional photography and meet them at the house"; "proof marketing materials designed by professional desktop publisher"; "do pre-list networking with other Edina agents" (all 1,600 of them); "plug new listing at various Realtor meetings"; "draft and proof (flattering) copy on MLS"; "promote the home's Broker Open."

And so on and so on.

All those things come across loud and clear to prospective Buyers.

And so does their absence.

Three. Who was the Selling agent? (representing the Buyer) -- and was it the same as the Listing Agent?

As I've blogged before, there are two types of dual agency: "broker-level," and "single agent dual agency."

In the first type, both the Buyer and Seller have their own agent -- but they work for the same Broker.

While that legally shifts the agents' duties, in my experience it doesn't alter either the negotiation dynamic or the outcome.

The second kind of dual agency-- where both the Buyer and Seller have the same agent -- is much more problematic.

In my opinion, no agent can serve two masters.

Which is why I will only represent one party in the transaction.

Four. Who was the Listing Agent? (representing the Seller).

Good Realtors have good reputations.

They do repeat business in the same neighborhood(s); are known for being thorough and hard-working; and have an established track record.

Mediocre agents . . . don't. (In fact, you're less and likely to run into mediocre agents, because today's hyper-competitive real estate market has already weeded them out.)

So, to sum up . . . . .

If the same (no-name) agent represented both the Buyer and the Seller; the house sold in 3 days with no prep or marketing campaign to speak of; and no other agents had a chance to get their clients through (or even knew the house was on the market) . . . . yeah, it's just possible that the house sold for too little.

Absent one or more of those factors, I'd be dubious.

P.S.: Note that none of the above factors include, "Sold for less than the Comp's would suggest."

While the Comp's (Comparable Sold Properties) certainly frame the owner's asking price and eventual sale negotiation, showings and actual feedback trump Comp's once a home is actually on the market.

When the Comp's Are "Thin" -- Or Non-Existent

"Active's" Loom Larger in Pricing Decisions

Realtors and Appraisers alike rely on "Comp's" -- comparable sold properties -- to estimate fair market value for any given home.

By definition, a Comp is similar in style, condition, and size as the "subject property" (the one you're trying to price); is physically nearby; and has sold in the same market.

Given that interest rates, economic conditions, listing inventory, etc. are constantly in flux, the "same market" typically means going back no further than six months -- and sometimes three, depending on the lender and price point.

"One of a Kind"

So what happens if there aren't any homes that meet those criteria?

That's especially the case for "upper, upper" bracket homes in the Twin Cities (and elsewhere) right now, which: a) are moving very slowly in today's market; and b) by virtue of their price, size, and finishes, tend to be more unique, anyways. (To be fair, the expected market time for expensive homes is always significantly longer than for more modestly-priced homes.)

By necessity, you then have to rely more on what you're competing against.

Typically, that means scrutinizing the dozen or so "Active" listings that prospective Buyers are most likely to consider along with the to-be-priced home -- then picking a price that beats all of them!

The virtue of that approach is that it (also) satisfies prospective Buyers' insistence on getting what they perceive to be a great value -- a requirement at the top of most Buyers' lists today.

Seller's Comp's vs. Buyer's Comp's

"East is East and West is West"

From experience, here are two good rules of real estate negotiation:

Rule #1. Never argue the "comp's" with the other side.

A comp, or comparable sold property, is a similar, nearby home that has sold recently.

To determine fair market value, Realtors and appraisers alike typically look for three good ones, then go through a "compare-and-contrast" process with the subject home to arrive at an adjusted value.

The first person to do the comp's is the listing agent, in the course of preparing a "market," or Comparative Market Analysis, for the homeowner.

Subsequently, the prospective Buyer's agent will also scrutinize the comp's.

Then, once there's a deal and the Inspection Contingency has been removed, so will the appraiser hired by the Buyer's lender (unless it's a cash deal).

In almost nine years of selling real estate, I've yet to encounter a situation where the Buyer's agent, in the course of negotiating an offer, made the case that the Seller's comp's were unrealistically low.

Nor have I seen an instance where the Listing agent, representing the Seller, readily conceded that their comp's were too high ("You got me! What was I thinking!?!").

In fact, the agendas of each side are so manifestly clear and self-serving -- not to mention transparent -- that it's almost always a waste of breath to engage on this.

Rule #2. If you're going to break Rule #1, you'd better make sure that you know the comp's -- or comp, if there's one in particular that looms large -- better than your negotiating counterpart.

I recently had a deal where the other agent was adamant that, "based on the comp's," my Seller's asking price was out of line.

He placed particular significance on one property in particular.

It turns out that the other agent had never been in the home.

Guess who had?

In fact, I'd shown the home to 3(!) clients, and knew every square foot of the house by heart.

So, I knew that the flattering Kitchen shots masked what was easily $100k in needed updating; the floor plan was off; and that the master bath was tiny -- and couldn't be expanded.

The upshot?

The Buyer significantly raised their offer, and ultimately reached agreement with my client.

P.S.: Trial lawyers have a saying, "never ask a witness on cross-examination a question that you don't already know the answer to." Good advice for Realtors "debating" the virtues of various comp's!

Today's Sellers: Biting Two Bullets

Two Bullets

Would-be Sellers of upper brackets homes now -- the slowest part of today's housing market -- often have to bite not one but two bullets.

The first is pricing their home consistently with "the comp's": similar, nearby homes that have sold recently.

In fact, better than the comp's, depending on what's currently active nearby.

Bullet #2 is ponying up for anything that's out-of-commission (or close) -- like an aging roof, badly dated flooring or walls, etc.

Sellers can certainly skip tackling any deferred projects -- but then they had better expect to price accordingly.

Often times, the needed discount is $2 or more for every $1 in repairs.

Cushioning the blow of bullet #2, especially for long-time owners: they may need to spend a few thousand on cosmetic updates . . . but it's a good bet they paid virtually nothing for their house, way back when.

For example, I recently worked with long-time owners whose home was "only" worth $800k last year (down from perhaps $1.1 million, ballpark, at the peak), but who paid $75k for it decades ago!