Yesterday I posted about the ill effects of overpricing your home for sale, and I have no doubt that I could never address this topic enough. It’s an ongoing problem that we’ll never be fully rid of, but I hope that by sharing my thoughts on it, I may be able to help a few home owners and agents understand it better.
Case in point; I posted back in May about a homeowner I visited with about his expired listing in the Lone Oak Parke addition. Now for “the rest of the story.” When I initially talked to this homeowner (Mr D), his home had already been on the market for about a year, was grossly overpriced (by about $30,000 after he had already lowered the list price by more than $25K) and he wasn’t at all willing to list it for less. He, of course, had no problem finding an inexperienced agent willing to list the home for him at HIS price again. Well, that listing expired after 150 days, and he listed with yet another agent (the 8th agent willing to take the listing at HIS price).
Now jump forward another 74 days, and Mr D’s home finally closed on 12/14/07 (589 days after he first listed it) at a sales price of $249,900, according to our MLS. Back in May when we talked, I told Mr D that his home would sell for around $244,000. So, he made an extra $5,900 by dictating his price instead of listening to me, right?
Not so fast… what about his carry costs? During the time his home was on the market (and he was living 2,000 miles away paying another mortgage and set of utility bills), Mr D was paying on his $224,000 mortgage each month. He also had the pleasure of paying his electric, gas and water bills monthly. I’ve estimated these expenses (very conservatively) in the chart above.
So, let’s break this down to a net sale, rather than a gross sale. After all, what really matters is what Mr D walks away with after expenses, right? His home sat on the market for a total of about 580 days. From the time I talked to him, to the time he closed on it with his eighth agent, about 220 days had passed. Here’s the breakdown:
In summary, if his first agent had advised Mr D to price this home correctly (and he had listened), and it sold in the then average 70 DOM, he would have netted $238,808 before repairs, closing costs and agent commissions.
Let’s assume he didn’t do that, but a year later he takes my advice and prices it properly, he’d have netted $227,683 before repairs, closing costs and agent commissions ($11,125 less than the previous scenario).
But instead, he did neither, and finally accepted an offer of $249,900, which netted him $200,983 before repairs, closing costs and agent commissions ($37,825 less than if he’d priced it right from the beginning).
Did Mr D’s persistence pay off?
About Ryan Hukill
Nice writing style. Looking forward to reading more from you.
Chris Moran
Ryan ~ You were so right about the listing price. It's so sad when we can't communicate to a seller how difficult it is to "chase a market" because of overpricing a home. So many sellers what to just try it, hoping they will get lucky.
In the end not only are they unlucky, they are broke.
Listening to the market, forecasting a decline while factoring in the absorption rate is the only way to figure a listing price.
Luck doesn't factor into it.
Kristal Kraft's last blog post..Sold! What does that really mean?
Kristal, well said. Luck has nothing to do with it, and when gambling becomes a part of the marketing plan, you know you're in big trouble. The market is what it is, and no amount of magical marketing will make a home sell for more than the market will bear.