Home Owners Are Buying Their Homes Back

It’s happened again and again to us and our fellow Realtors this week. Buyers have made legitimate offers only to have them rejected by sellers that are pricing their properties too high in hopes the price will attract a higher offer. These sellers are, in effect, buying their homes back from serious qualified buyers.

Many Buyers Are Walking Away from Counter-offers

Negotiating the sales price of a home and the other contract details used to be a back and forth process that might go through several counter-offers. What we’re seeing more and more of these days is a buyer making a serious, considered offer that is being countered by a seller in hope of getting the buyer to meet them halfway, but the buyer, knowing the market is full of good deals, is just walking away from the counter-offer.

Sellers Are in a Race Against Time

What home sellers need to realize is that they are in a race against time. The more time that passes, the more the market drops. In this market, sellers need to consider every offer as if it will be the only offer they get. Pricing at the market value in a shifting market is is really over-pricing. Sellers need to price ahead of the market and in this market that means lower not higher.

The Waiting Game is a Money Losing Game

We must have talked to 30 to 40 sellers in 2007 that were going to wait until 2008 to sell in hopes of getting a better price. Those sellers are wishing they had sold last year. This year, we’re running into even more buyers gambling on improvement next year. Is anyone watching the news these days? The impact of this economic turmoil is going to take at least two more years to work out in mot real estate markets.

A Tale of Two Markets

What we are seeing these days is the tale of two markets. Homes priced to sell and homes priced to sit. 80% of homes currently on the market are priced to sit. The 20% of homes that are priced to sell are getting multiple offers.

Sellers are either in the market or out of the market. Everyday that passes in this market pushes an overpriced home farther and farther out of the market.

Home sellers are falling into the money pit trap left and right and it’s costing them more than money. I’m not talking about remodeling, renovation or upgrades. I’m talking about pricing it right from the “get go” when deciding to sell.

Once again, I find myself in a situation where good advice and experience have been sacrificed to hope and fantasy. The casualty in this affair will be my reputation as it is often difficult for the seller to own their part in the whole affair.

Which affair, you may ask? Let me give you the quick outline.

• Seller wants to sell and move up
• We tell them what is happening in the local real estate market and suggest a price in line with current market conditions.
• Seller believes their house is worth more based on the past market and the fact that they want more regardless of what is happening in the local real estate market.
• 6 weeks go by as traffic and interest dwindle, the local housing market continues to move downward and the whole loan industry goes into meltdown.
• The seller, having resisted numerous suggestions to reprice the house, agrees to lower the price.
• Instead of pricing the house at the price we suggest that is in line with current conditions, the seller prices it at the price we originally suggested 2 months ago.

You see where this is going?

The seller is following the market down despite our best attempts to get them in front of the market. The seller is losing money and unfortunately and worse for us is they think it is a lack of marketing, advertising or effort on our part.

They think this in spite of the fact that there were several “very interested” parties who thought the property was appealing, but was over priced and needed more upgrading.

More could be said to outline the whole affair, but the bottom line is – the biggest challenge in real estate is getting a property priced right.

AND the biggest hurdle to this is getting the seller to look at their house not through their eyes, but through the eyes of the buyer.

We had a similar situation about nine months ago, it didn’t work out for us (except in the reputation hit mentioned in the second paragraph above). The house eventually sold after we fought the pricing battle and lost the listing war. The agent that followed in our footsteps was able to lower the price significantly (to where we were trying to get it from the “get go”). He also lowered his already discounted commission to get the listing.

Now I’m not trying to be “Woe is me” and tell you a sad real estate agent tale. On the contrary, this is part of the business and despite our best efforts, we seem to get into this situation once or twice a year as we do our best to work with people. What I’m trying to accomplish here is to create some space for the seller to entertain the thought that “market trends and conditions” have a significant impact on what a house will sell for today – not yesterday, last week, last month, or last year.

If you are selling or planning to sell your house, grill your agent on real estate trends in your area. If they can’t pull out the data to show you what’s happening in your market – move on. If they can – listen up, they are probably trying to help you get the best deal possible in a changing world. This will save you money, time and lots of aggravation.

Remember the show Truth or Consequences? Many home sellers are playing that game right now and it’s sad to say that many real estate agents out there are colluding with them.

We’ve written many posts trying to assist homeowners with some of the more difficult aspects of selling a house and choosing an agent –

• #1 Tip for Homesellers
• Does Your Realtor have YOU hog-tied?
• Proactive Foreclosure Prevention
• Perfect Time For MoveUp Buyers
• Help U What?

The list goes on and on, but pay attention to these:

• #1 Know what is happening in YOUR local market
• #2 Get the truth about the current market price of your home

If you don’t get the truth – YOU – are going to pay the consequences.

Home prices drop for third straight quarter - Realtors report that markets are still softening

NAR asserted that the price stats exaggerate the actual home price decline. Unit sales have fallen far more in high-priced areas than in low-priced ones, essentially shifting the mix and pulling down the median price nationwide, it said.

Home-price forecast: First ever decline – National Association of Realtors cuts 2007 forecast; would mark first drop since it began tracking values in 1968.

Agent Commission does not equal more money in the seller’s pocket.

Several recent events have encouraged me to write this post.

• There is a misconception on the part of many, if not most sellers, that reducing an agent’s commission is going to mean more money in their pocket.
• Discount broker flyers aren’t what they appear to be.
• We do it all for less usually means you do it all for less

The other day, I received a jumbo postcard in the mail from McDiscount – a flat-fee discount broker – that featured a bunch of houses with “SOLD” across the images and how much money McDiscount had saved these home-sellers.

Looks great and sounds great until you do a little digging. Example: A house sells for $700K. McDiscount charged the home seller $10K for their services. A full service agent would charge 3% for their side of the transaction = $21K. McDiscount claims – We saved these sellers $11K!

Aaargghhh! Bong! Maybe right, maybe wrong. How long was that home sitting on the market with the sellers making mortgage payments, taxes and maintenance until it sold? How many price reductions did it go through? How much did the sellers spend on advertising?

In my opinion, here are the top 2 reasons why professional agents get higher sales prices

for houses they transact – pricing & negotiation skills. Most home-owners enter the home sales process thinking that they are gong to stand firm on their price. Setting the sales price is one of the most difficult aspects of the process for the home seller because of their emotional investment in the house. It is very difficult for most homeowners to price their home according to market value.

Then after waiting and waiting for the home to sell through the McDiscount marketing plan – YOU do it all after we put it on the MLS – the price commitment begins to falter. Since the property wasn’t priced right to begin with, there are usually two or three adjustments to get it right. All the while the pressure is building rapidly because too much time has now elapsed and the seller is in a position of “having to” do something soon to resolve the situation and get on with life.

Having said all of this, don’t get me wrong, McDiscount is the way to go for some people, especially in a hot market like a few years ago.

But, here are a couple of personal notes about this market:

• I was talking to a former owner of a McDiscount franchise a few months ago. He told me that he sold the franchise about a little over a year ago at the top of the market. He was extremely happy that he had as he saw nothing but tough times ahead for the people that purchased it.
• We met a guy with a house listed with McDiscount. This is a beauty of a house that could have been sold and gone seven months ago, but it wasn’t priced right nor was it marketed – at all. It just sat there and sat there. After a couple of huge price reductions, I think it is under contract – but that owner lost more money than he would have ever paid in commission to an agent to help him sell that house.

Added 3/5/07 - Clifford over at WebHomeUSABlog has this post today: Top Ten Reasons to Sell Your Home Yourself