Can't I Charge More For My House In This Market?
It’s a seller’s market—we keep hearing this over and over, and it’s true. What that means, of course, is that a lot of people want to buy a house, and a lot of houses aren’t for sale. It’s a simple supply-and-demand principle that you learned in high school economics. Because of this, homeowners have been selling their houses faster and at a higher price, which makes things easier in a lot of ways (not having to keep your house picture-perfect for weeks and months on end, for instance) and gives sellers a higher down payment for their next place. In May 2017, in fact, area sellers received, on average, a stunning 99.5% of their original asking prices.
A younger friend of mine—let’s call her Molly—hoped to upgrade to a bigger home, and she wanted to sell her starter for enough profit to avoid having to use an FHA loan for the next one. According to her calculations, she’d have to list it for $190K or it wouldn’t be worth selling. Hearing about the local market, Molly felt confident that the house wouldn’t sit too long, even at that price. It was a big gamble—she had six children, so the stress of keeping the house properly staged for showings wasn’t really sustainable for a long haul. Her realtor (not me) cautioned her, but a homeowner makes the final decision, so the house went on the market for $189,900.
Here’s what you’re expecting to hear: Molly should have listened to her realtor; the house sat on the market for months and ended up only netting $175K, even lower than her realtor’s initial recommended price, because the house kept getting messier and messier and showed really poorly as a result.
Nah. It sold. In two days. For $195K plus closing costs.
So the moral of this story: ignore your realtor and list your house for as much as you want, because IT’S A SELLER’S MARKET. Hooray!
The Price Is Right!
You certainly can list your house for whatever price you want, and someone certainly might offer that price for it, or even higher. Real estate isn't an exact science, and you might come out on top. People are pretty quick to jump on a property they love right now, and a few thousand dollars more doesn’t have a major impact on monthly mortgage payments over time, so they’re often willing to throw in extra money to make sure they beat out any competition for your house.
So what’s the problem?
There are two major concerns with listing your property at a higher value than your realtor suggests.
1. At the wrong price, your house may take longer to sell. But “good things come to those who wait, right? Well, not always in real estate. A long time on the market for your house means decreasing buyer interest and increasing buyer concerns. Here’s a chart (courtesy of Coldwell Banker Burnet) showing the dramatic drop-off in buyer interest over time.
Using your realtor’s experience and research to set the right price makes sure your house doesn’t linger past the period of excitement over its entry on the market.
Also, many days on the market makes buyers wonder if there might be something wrong with your property that doesn’t show up in the beautiful photos. Why hasn’t someone snapped up this house? No one wants to purchase a money pit by mistake. You can avoid raising those unnecessary red flags by pricing your property correctly from the start.
2. Even if your house receives an offer for a high asking price, you may not be able to complete the sale. Let’s go back to my friend’s experience. Molly and her husband sold their house quickly, and found a fantastic property they wanted to purchase. Ignoring the advice of their realtor (it worked out the first time, right?), they offered the owner a deal she couldn’t refuse—a number well within their preapproved mortgage amount, and well within the property’s Zillow estimate (don’t get me started on Zestimates—insert eyeroll here).
However, when their lender sent out an appraiser, the house’s value came in $40K below their offer (Zestimate notwithstanding), and Molly was forced to renegotiate with an angry and disappointed seller—even agreeing to a higher interest rate in an attempt to bridge the huge gap.
A lender cannot offer a loan higher than the appraised value of a house, because all mortgages are risky business, and the lender needs to be sure of getting the money back in the event of a future foreclosure. No matter what, the appraisal must come in at or above the full offer amount (note—the full offer amount, including any down payment furnished by the buyer, not the full loan amount).
Molly and her husband could only take out a loan for the appraised value minus their down payment, and they certainly didn’t have an extra $40K in cash to chip in from their own bank account.
If your house finds an excited buyer willing to pay your price, but can’t get the financing at that level, the offer won’t stand. You may be able to renegotiate (if you can afford to sell your house at a lower profit), or your buyer may just back out of the deal, soured on a property that now looks less valuable than they had thought. And what happens when your house goes back on the market? Those days on the market start adding up quickly, and so do the buyers’ mental red flags.
So the real moral of this story: your realtor spends a lot of time and money on drawing up complicated legal documents, advertising (those beautiful photos weren’t free), and researching the market in order to get your property sold to the right buyer at the right price, and a lot of training and work goes into the license that allows him/her to continue doing business in real estate. It makes sense to put that expertise to work on your behalf at every stage of the process so your family can navigate the bumpy road of real estate as smoothly as possible.
That journey starts with the right price.
Posted by L. Lathrop for Jim Burns