Most homeowners throughout the United States are having a collective sigh of relief. The home sales market is recovering and prices are rebounding. Between good news on the home front and a strong bull stock market, many people have a positive outlook on their personal finances. This is called the wealth effect and the result is a loosening of the household wallet.
I don’t sell cars, appliances or stocks so I will comment on what I know and work with every day. In a recent post I commented on the best practices of the home buyer in a hot real estate market. Today I’m going to share my ideas on how to be a smart home seller in a sellers market.
Price it Right
In the Boulder area real estate market we are seeing very low inventory and high demand. This causes a shortage of homes and results in smart sellers getting multiple offers and selling their homes for more than they thought they might.
But this isn’t happening to all sellers. Here is a scenario I’m seeing a lot right now – Mr. and Mrs. Seller recognize that the market conditions favor them so they decide to price their home 10 – 20% higher than what the recent sales in the neighborhood show. Buyers come out to see the home in great numbers over the first week and the general sentiment is that the house would be acceptable but it’s not a house they want to break the neighborhood record on and they move on. The Sellers recognize a few weeks later that they are not going to get their “dream price” so they reduce it by 5%. Still too high for the market but by this time the market wave of activity for a new listing has passed and they are chasing.
A smart seller in this market looks at the recent sales and the competition with their Realtor and decides on a fair market value. They recognize that the market will bear a good price but they know that the house must appraise and be in good condition. If it is listed at a reasonable price near market value and in good condition there is a good chance there will be multiple offers.
Take Advantage of the First Wave
At any one time there are (hopefully) many buyers who are in the market for homes in any given area or price range. In a market with low inventory they soon sift through the current listings (either in person or online) and decide that they are not willing to buy any of the current homes on the market. So they focus on what is coming on the market. Here is where a good Realtor is invaluable. This buyer cannot wait for an open house or wait for the Sunday paper. Buyers are trolling online at all times. I have automatic searches sending results to hot buyers three times a day. So when a new listing hits the market buyers flock to see if this is the “one”. If it is they want to be first. The current buyers waiting for new listings are the first wave and right now it is a strong wave that lasts 3-4 days and comes in strong. In this market it is not uncommon to have 15 showings within the first four days. These are the most likely buyers.
If a home lasts through the first wave without an offer you know something is off (price, condition, location). After the first wave passes you, as a seller, are counting on people who are new buyers and those who were not available to see the property over the first days. This is a smaller pool. You are in the backwash.
If you have priced the home correctly the hope is to get multiple offers on your home. This puts the seller in a advantageous position and with guidance from their Realtor, they can compare the merits of multiple offers and choose the best one. I find it’s best to give all potential buyers in a multiple offer situation equal information. For me, that means each offering party knows when the offers will be considered and how many offers they are competing against. As a sellers agent I encourage buyers to bring their highest and best offers and give everyone a chance to revise their offers if they choose to do so. I then go through each offer with the seller and let them decide which offer gives them the best chance to close for the most money.
Get a Backup Offer
There are many reasons that a house that is under contract doesn’t close. Here are a few:
- Buyers Remorse – This is especially common when the buyer feels pressure to make a quick offer and then feels that they have paid too much after beating out multiple bids.
- Inspection – When there is time pressure to submit an offer there is not time to look at the home carefully or to show family members. This makes getting through the inspection especially important.
- Appraisal – Just because a buyer is willing to pay a certain amount for a home doesn’t mean that the appraiser or the bank will agree. If the appraisal comes in low and the buyer doesn’t have additional funds available to mitigate the banks risk the contract will terminate unless the seller is willing to re-negotiate. And if there were multiple offers, it is a good chance that the sellers will not re-negotiate.
It’s for these reasons it is smart to encourage a backup offer. And the best time to get a backup offer is when there are multiple offers. All it takes is to create a quick counterproposal with appropriate language. It is a no risk insurance policy which is usually a win-win.
If a buyer has paid a premium price for a home it is common for them to be very picky on the inspection. They feel the home should reflect the price and unless an “as-is” clause was included in the contract you can expect to be negotiating again on some inspection issues. As a seller your negotiation position is greatly enhanced if you have a backup offer. A good gauge as you consider the buyers requests is whether another (the next buyer) would likely require the same items. If so, it might be a good idea to negotiate in good faith and move forward.
Finding a Replacement Home
The advantages of a tight market on the selling side lead to difficulty if the seller needs to find a replacement home that will not require a double move. In a strong sellers market, the sellers must have a plan of where they are going to go. Don’t get stuck in a situation where you are homeless for a period of time. Plan ahead!
Since each transaction is different it is hard to anticipate all scenarios but those are some of the major considerations when a seller is looking to list their home in a sellers market. If you are looking for expert representation in Boulder County call me, I have been successfully working in this market since 1991.