Selling Hurdles -- Financial & Psychological

The Psychology of a Spurned Offer

Sometimes, financial considerations prevent home owners from selling.

If they owe more than their home is worth, they must either be able to write a check for the shortfall at closing, or, persuade their lender(s) to reduce the mortgage balance.

However, such "underwater" home owners only account for a slice of the Twin Cities housing market today.

What accounts for all the "above water" homes that seemingly linger on the market month after month (and in some cases, year after year)?

By definition, such Sellers don't need to sell; otherwise, they would have.

In Realtor-speak, such Sellers are said to "lack motivation."

Psychological Hurdles

Take away economics, and that leaves . . . psychology.

Sometimes the rub is what a neighbor sold their home for.

That's especially the case if the home didn't measure up to theirs.

The catch, of course, is that market conditions can and do trump home features; I can think of dozens of Twin Cities homes that sold for more -- a lot more -- three years ago than their more impressive neighbors are listed for today.

Even closer to home (sorry, bad pun) is the would-be Seller who turned down an offer above their current asking price earlier in the listing.

In fact, I just heard about an Edina home, now under contract for $900k, that had been on the market for over 2 years, starting at over $1.2 million.

Along the way, the owner apparently rejected two such offers -- one for $1.1 million, and another, later one for $1 million.

You'd guess that they have plenty of company (albeit at less lofty prices).

It's Listed for HOW MUCH??

Now THAT's Curb Appeal

Pop quiz: guess the listing price of this estate-like property (with a setting to go with) in Hopkins' Knollwood neighborhood (just northwest of highways 169 and 7) :

A. $1.29M
B. $2.45M
C. $949k
D. $1.89M

Answer: C

What's the explanation?

A rough market for upper bracket homes in the Twin Cities; and the fact that the home needs some cosmetic updating (some, not a ton).

Bonus question: what's missing in the shot above?

No garage.

It's actually on right side of the home, but what you see from the street is the back of the garage, not the front.

Nice.

From Too High to Too Low?

A Tale of Two Homes

Where: 29xx Benton Blvd, just southwest of Minneapolis' Cedar Lake

What: 4 BR/4 BA; 3,100 FSF Colonial built in 1939

How much: sold for $641k (July '09); originally listed for $925k (April, '08). Tax assessed value: $849k.

Not convinced that overshooting on asking price can boomerang on a Seller (especially in a declining market)?

Consider this classic, 1939 Colonial just southwest of Cedar Lake, in Minneapolis' Sunset Gables neighborhood ("Exhibit A").

Originally listed at $925k in April, '08, it suffered six price cuts totalling $225k over a 13 month period -- capped by the biggest one of all: a $59k discount from the last asking price of $699.9k.

Ultimate sales price: $641k.

Three blocks west, my clients listed their very similar, 1937 Colonial at almost the same time -- Spring, '08 -- for $875k. Call it "Exhibit B."

Based on the feedback and showing activity, after a month on the market, I advised (and my clients agreed) to cut the price to $829.9k.

Six weeks later, they had a signed deal, and two months after that (Aug, '08), they closed.

Selling price: $790k.

"Psst! Make Me an Offer!"

Overpriced Homes And
Phantom Negotiating Leverage

Is a too-high asking price negotiating leverage?

Apparently, some Sellers today think that it is.

Instead of pricing their homes within the range suggested by the "comp's" (comparable sold homes), they stake out a price as much as 30% above.

Why? Negotiating leverage (presumed, at least).

When their home doesn't sell, as it invariably doesn't, rather than drop their price, they then instruct their Realtor to quietly put out the word that "the price is negotiable."

Memo to these Sellers: 1) the price is always negotiable, no matter what you're asking; and 2) if you price your home 30% above market, and it then sits for 6 months (or 2 years), it's not exactly a secret that you're overpriced.

Sellers who overprice invariably shoot themselves in the foot, for two reasons.

One. Homes aren't sold in a vacuum.

Rather, they're sold in the context of a peer group -- one that the Seller picks, by dint of their asking price.

If your home is really worth $500k, but you ask $650k, guess what? You'll be compared to $650k homes for sale and found wanting.

What happens next is that the overpriced home sits. And sits.

Which leads to . . . . reason #2:

Time on the market is a home Seller's enemy.

Depending on the price range, a for-sale home starts to look shop-worn anywhere between 3-6 months. After a year, there's actually a certain stigma: 'the Jones home? It's been for sale forever.'

Instead of feeling a sense of urgency and overlooking flaws, prospective Buyers circle at their leisure, zeroing in on the smallest blemishes.

The net result?

To overcome Buyers' skepticism, not only does the overpriced home Seller ultimately drop to market value, it typically overshoots on the low side.

Pre-Thanksgiving Leftovers

Sizing Up (What's Left of) the Summer Market

Maybe it's just the unseasonably cool weather prompting thoughts of Fall(!), but here's how I see the Twin Cities housing market shaping up between now and Thanksgiving, when things traditionally slow down.

Basically, I think the sub-$500k market has different qualities before and after Labor Day (housing above $500k is likely to mirror overall economic strength or weakness).

Between now and Labor Day, Buyers will have the best selection, and can expect stronger (higher) pricing.

After Labor Day, that will reverse, and Buyers can anticipate softer pricing, but smaller selection.

Swimsuits -- and Houses -- in Feb.

That's so because the Twin Cities market still has a strong seasonal component, with "Spring" (beginning mid-Feb.) the busiest, and Nov. - Jan. predictably the slowest.

Think of it this way: if you listed your home in April, and still haven't sold -- it's time to get serious. Cut the price, invest some money in fix-up, make a final marketing push.

In fact, many home Sellers are already at this point, and alert Buyers will snatch up the most enticing of these homes.

Once this process is complete, what will be left on the market?

The true "leftovers."

Such Sellers will now have to overcome three obstacles: 1) even greater accumulated market time (referred to on MLS as "CDOM," for cumulative days on market); 2) a rapidly closing window to sell before truly cold weather arrives; and 3) a depleted pool of Buyers.

Offsetting these negatives will require a truly compelling (read, low) asking price.

Deal . . or No Deal?

Another Steep Discount From Listing Price

If you have to sell Christmas week in what is already a soft market . . . you may not like the price.

This is the second instance I've seen of a property sold then accepting a very deep discount from the most recent list price. The home is located in Minneapolis, just northwest of Cedar Lake:

http://matrix.northstarmls.com/de.asp?k=411903X1JL0&p=DE-39406710-836

In this case, the last list price was $299,900; the selling price was $220,500, a 26% discount!

So did the Buyer get a deal?

I didn't see the interior, and therefore can't speak to either floor plan or condition (the home was a foreclosure). However, I do know the neighborhood, tax value (almost $400k), what the last Buyer paid ($490k in 2004), and the home's tortured selling history (almost 3(!) years of market time, starting at $539,900).

And perhaps most crucially, I've got a very educated guess about when the deal was struck: going by the off-market date, January 2, you'd infer that the Purchase Agreement was consummated right after Christmas, and that the Inspection occurred shortly thereafter (most Inspection Contigencies play out within a week).

Based on the foregoing, I'd guess "yes" -- unless the Inspection turned up a major issue (or several of them).

List Price Discounts

Sold Price $135k below List? Ouch!

One of the characteristics of a Buyer's market is Buyers wresting steep discounts from the Seller's asking price. Even so, a $135k discount -- from an already reduced $800k asking price -- stands out for sheer magnitude (note: to see the unabridged report, go to "display" in the lower left and select "Property/Agent Full"):

http://matrix.northstarmls.com/de.asp?k=411903X1JL0&p=DE-39160848-449

Is the market really that soft?

At least in this case, I think a couple of other factors are operating.

First, the original asking price, $850k, was, shall we say, aggressive, based on what I know of the comp's ("comparable sold properties") -- quite a bit, considering that I've sold millions of real estate within a few blocks in the last few years.

Second, based on the time that elapsed between when the home went pending and when it closed -- one week -- you'd speculate that the Buyer paid cash. With tightening underwriting standards and fewer well-qualified Buyers out there, an all-cash offer warrants a nice discount.

Third, the home was a "spec" (speculative) remodel done by a builder-remodeler. By definition, such homes are vacant -- no one is deriving any benefit from them. Meanwhile, the holding costs continue to mount along with the time on the market.

Whereas many long-time owners can be quite emotional --and therefore stubborn -- about taking price reductions, corporate sellers tend to be more dispassionate and bottom-line oriented. Closing by year-end may also have had favorable tax consequences (if indeed the Seller took a loss).

Finally, the home sold in mid-December. Ordinarily, this is already a seasonably slow time of year for the Twin Cities housing market. However, with all the economic turmoil the last few months, December this year was colder than the thermometer.

In such an environment, a heavily "discounted" offer is better than none at all.