By Gary L. Kelley, Realtor®
Everyone knows inventory is “low,” and rates are still low (albeit starting to go up.) Doesn’t this make demand sky high for houses and let me set a high selling price?
Yes, the combination of low inventory and low rates are driving parts of the market. Inventory is perceived low because homes coming on the market are selling very quickly. The number of homes selling year over year is staying steady – the market never stops. Even at the beginning of the pandemic we still had closings.
Some clients are saying, “Let me overprice my house, the market will figure out its value.” Others have said, “Let’s underprice my house, and drive a feeding frenzy.”
In either case, you deal with market perception. If the market perceives a house as wildly overpriced, the house may be avoided by buyers. It’s the same with an underpriced house, although the bargain hunters and flippers will come out in droves.
If an aggressively priced (high priced) house does get an offer, the type of financing becomes important. I jokingly say banks really don’t want to give out money and that’s why getting a mortgage is so challenging. I tell this to buyers to telegraph it’s a bit of a game, and to win the game they need to respond quickly to an almost never-ending series of mortgage underwriter questions. And often answers create more questions…so buyers need to be in the game for a bit.
The truth is banks are managing their risk. They don’t want to end up owning properties. It takes banks time and effort to “take a property” through the foreclosure process. Besides checking the crevice of borrower’s couch for all change so they have the “full financial picture,” they also want to understand what the property is worth. The bank or mortgage company hires an appraiser to visit the property, and other comparable properties, to determine is the sales price of the home is reflective of the market. When the appraiser determines a property is valued substantially below the sale price, this “appraisal issue” ends up causing someone to make up the gap for the deal to go forward. Sometimes this means the buyer needs to kick in cash (“Hi Mom and Dad, it’s been a while, can we talk?”), or the seller must drop the price. If this doesn’t happen the property has to go back on market with frustrated buyers and sellers.
Of course this is avoided if the buyer brings cash – no bank means no appraisal.
We believe the best strategy is to price the house correctly from the beginning. We look at all the automated systems (Zillow, Redfin, Realtor, Homesnap) and a few used solely by Realtors and appraisers. We call these the system values. Then we look at the numbers as an appraiser might….we call these the human values. Systems work solely based on publicly available data, and many times have errors leading to erroneous values (why is it so hard to keep track of rooms, especially bathrooms? Perhaps a better question is how did that bathroom “appear?”)
A combination of automation and humans looking at the market often leads to a great starting value. If you see an otherwise fine house sitting on the market a long time check the price history…the owner may have overpriced the house, scared people away, and is now lowering price to drive demand back. Sadly, they may end up selling for less than properly pricing from the beginning.
Here is free app for your phone/tablet tied directly to the MLS https://www.homesnap.com/Gary-Kelley
Gary is heard on WCRN AM 830 discussing “All Things Real Estate.”
If you need advice on selling your home or buying a new one, give us a call 508-733-6005.