In real estate it is a known fact that it is actually the buyers who determine the market. Home sellers can put any list price they please on the listing sheet, but it is the buyer that actually speaks for the “market.” However, that is not to say that an individual buyer can determine the market by him or herself! It “buyers” collectively that determine where the market is for any given home.
The Market Has Spoken!
The “market” has its own siren song…it’s own mind and it calls out to both buyers and sellers alike. It can not be escaped by either and generally speaking – it pleases no one completely. I suppose you can think of the “market” as some sort of collective – for Star Trek fans – this is something akin to the Borg…”Resistance if futile….” To some extent this is really true. Homes sell within a price range. In a bull market those prices are rising in a bear market those prices are declining. Buyers who are seriously considering a purchasing a property need to be aware of this range in order to be successful. Trying to work against the market really is “futile”. It can also be the kiss of death on a home purchase because low balling signals either an intent to gouge or a lack of commitment to the property. They are often not taken seriously so if a competing bid comes in they are given the heave-ho in very short order. When I list a property – gougers that keep coming back with crazy offers get shown the door rather rapidly if another buyer shows up and presents something realistic up-front.
Picking a sales price out of a hat….
When I work with a seller or a buyer, I come up with a price point for properties based on several criteria. Since no two homes are identical – I admit that the pricing process is both art and science. Still – most Westchester condos and homes generally fall into a price range that is fairly narrow. The numbers I give to buyers and sellers did not come out of my hat – they were carefully considered before I put them out there. Here are some mistakes that buyers tend to make when they place an offer….
Discounting for further depreciation…..
Just because prices are declining – it doesn’t mean that a buyer can project six months or a year ahead and say – “This market declined 10% last year so I want 10% off fair market value to shield myself against future declines.”
First of all, no one knows that the market will continue to decline at the same rate as it did the previous year. Market declines as well as increases are a moving target. We only have 20/20 hindsight. If there is one thing we do know: the past is a dismal predictor of what prices will do in the future. Just ask anyone who bought a home in 2005 -2006 about that – you’ll get an earful I promise. Second – this makes about as much sense as a seller saying they want 10% above market to account for projected price increases that the buyer is positioned to enjoy.
In any event – this technique is not going to fly because one rouge Borg that escaped becoming part of the collective will not be able to determine the price point. If the asking price is significantly out of sync with the “market collective” - the rest of the buyers will be on a different page and the seller just has to wait for a “reasonable” offer. Reasonable being an offer that reflects the present market conditions.
Calculating the cost of renovations and deducting it from fair market value…
The market value of the home is determined by the general condition of the home. If the home needs a new kitchen, fair market value takes that into account. Deducting $30k for the cost of a new kitchen just won’t fly if the home is already priced to reflect that reality. Buyers are also very excited about the things they want to do to a house. They might want to put in a new bathroom or add a deck etc. However, that has nothing to do with what the home is worth. The “market collective” and the seller don’t give a fig about what the buyer wants to do with the house once they buy it. Calculating those costs into the offer doesn’t make sense as long as the home is appropriately priced. Saying to the seller “I need to get the house for X because I have to all these renovations” is no more relevant than the fact that the seller spent $10k for a high-end Euro-style cabinets 20 years ago…
Recently, several buyers I’ve worked with have indulged in what I call the stare-down. They set a line in the sand because that was the price they “wanted” or “needed” and wouldn’t budge. Sometimes we were talking in terms of a 1-2% difference between the buyer and seller on a property that was clearly priced to move. If the property is overpriced – such a tactic might bring the seller down to earth. But when every comp says that the home is at market or below – this will only create a lot of antagonism and push-back. I’ve had sellers shut down all together and refuse to entertain ANY further offers from buyers insist on doing this.
The best price isn’t necessarily the lowest price….
Much of this has to do with the media over-hyping the downturn. This creates buyer hubris. Buyers think that nothing is selling and that there are no other buyers out there and they can simply set the terms. The difficult winter created a very late spring market – contributing to that perception. But buyers are no longer hibernating. That’s how this market works. Buyers are cherry picking. A home in relatively good condition will get attention. Coming in with an offer that is totally divorced from the comps will not get the buyer where they want to go.
Don’t get me wrong – if the property is over-priced – then don’t be afraid to come in well under the asking price – but applying unrealistic downward pressure in an already appropriately priced property accomplishes nothing and often backfires. You are buying a home for yourself in and your family – no one should be engaging in games of “chicken.”
© 2011 – Ruthmarie G. Hicks – http://thewestchesterview.com – All rights reserved…