Am I Getting Market Value For My Home Today?

Strong emphasis on “today”! The Coronavirus Pandemic has impacted the real estate market in more ways than one here in North Carolina.

2020 showings in North Carolina were tracking steadily along the same path as 2019 showings. Then on 11 March, showings took a nose dive and today, 5 April, showings are down 74% since 11 March.

According to Durham’s Stay At Home Order (click here), real estate services are considered non-essential – aside from appraisal and title services. In-person showings and open houses are prohibited. Other surrounding counties may be allowing in-person showings but Durham appears to be more restrictive.

Nevertheless, real estate transactions are still taking place. Upon entering my office this morning and checking the activity that occurred over the last day, I see 36 new listings came on the market and 24 homes sold. In full disclosure, this is activity that had occurred in Durham County as well as these counties: Alamance, Orange, Person, Granville, Wake, and Chatham.

For sellers that are putting their house on the market today and receiving / accepting offers, are they getting market value? Market value is an opinion of a home’s value partly defined by its exposure to a competitive market for a reasonable time prior to sale.

Since the number of showings are down so significantly, how competitive is the buying market when, in some cases, buyers cannot take in-person tours of homes and instead, must rely on videos and agent walkthroughs. Undoubtedly, most buyers would not put an offer on a home unless they were able to see it in-person. Less showings and fewer offers makes for a much less competitive market. Therefore, it can be argued that less competition means lower prices.

Many sellers are waiting until the market returns to some form of normality. On the other hand, sellers that are entering the market today are the highly motivated sellers – those that may HAVE to sell their home. That pressure alone may force that seller to take the first offer or any offer for that matter, further reducing the likelihood of receiving market value as the home may not have been on the market for a reasonable time prior to the sale.

Bottom Line

If you are one of those sellers that HAVE to sell their home during this pandemic, one way to ensure you’ll receive market value for your home is to hire an agent that will conduct an in-depth comparative market analysis and explain the numbers to you.

Photo credit: amycgx on VisualHunt / CC BY-NC

What Agents Have That Homeowners Don’t!

Agents have their fingers on the pulse of the market. Since we sleep, eat, and drink real estate, day in and day out, we have a feel for the market.

There’s no other way to explain it. The data can remain consistent from week to week and month to month, but agents with “boots on the ground” have a sense when the beat is slightly off.

Over the past 6 weeks, the Triangle Multiple Listing Service (TMLS) data has been consistent regarding the number of active listings, months of supply, and days on market on a week to week basis.

But something’s not right. The number of price reductions or as many agents will say, price improvements, has been escalating. And unfortunately, I don’t have the numbers for price reductions but that goes back to my point, good agents have their fingers on the pulse of the market and can sense when the beat is off.

It’s also helpful that I work in an office (a big shout out to West and Woodall Real Estate) with some top notch / top gun agents. They’re truly some of the best you’ll find in the Triangle. And when we all start sharing this feeling, it’s not a coincidence.

Along with the higher than usual number of price adjustments, the number of buyers has appeared to diminish too. So, is there data to back up our feelings? Of course there is. You really didn’t expect me to say “no” there, did you?

Let’s look at homes priced between $100,000 – $400,000. I chose this range because more than 73% of all showings are for homes in this price range.

Over the last 90 days, homes in this price range averaged almost 9 showings per listing. Now, if we just take the last 30 days, the number of showings per listing was only 5.66. That’s more than a 36% drop in the number of showings per listing! So our feeling that the buying pool is starting to dry up was correct.

Fewer showings means more days on the market before a home sells. Sellers put their homes on the market anticipating it to sell in X number of days because that’s what the data was telling them. Sellers need to be in their new home by such and such a date so what do they do? Reduce the price to make that date. And maybe several price improvements.

Also, as we enter the “slow time of the year”, sellers need to understand the odds may be stacked against them. Now please, I’m not by any means suggesting sellers do not put their house on the market at this time, that’s not what I’m saying. In fact, there are many reasons why a seller would put their home on the market now but I’ll leave that as a topic for a later post.

All I am saying is the odds of selling your home has slightly decreased over the last four weeks. A month ago, a seller had a 73% chance of selling their home whereas today, they have a 69% chance of selling.

So what does this all mean? It means you, as a seller, need to hire a knowledgeable, professional, full-time agent that has their fingers on the pulse of the market.

That agent could have advised you on the price reductions taking place in the market along with the decreased traffic and lower odds of selling your home so together you could agree to price your home ahead of the market. Your home would be priced correctly to increase foot traffic and therefore, increase the odds of selling your home so you could meet the deadline of being in your new one.

Photo on Visualhunt

Seeing Through Rose Colored Glasses!

That’s right! Rose colored glasses! Most sellers I meet with tend to look at their home through “rose colored glasses”. I’m sure you understand what I mean. For those that may not be familiar with the phrase, I’ll explain.

You see, sellers tend to look past their property’s deficiencies and instead view their property as deserving of top dollar once it hits the market.

When I say deficiencies, I’m talking about a property’s depreciation in value as opposed to appreciation in value. While it’s true that properties, at least in the Research Triangle Park area of North Carolina have appreciated significantly over the last 9 – 10 years (41%), many homeowners are finding that their home has appreciated much less overall. So, why is that?

First of all, these homeowners have allowed their homes to physically deteriorate over time. Realtors refer to this condition as deferred maintenance. In most cases, this is a curable condition. Realtors will often recommend to sellers to paint, or repair rotted exterior wood, or replace carpeting, or replace a roof. These repairs can result in an increase in appraised value for these homeowners and of course, a higher sales price.

While physical deterioration is readily apparent to homeowners as well as realtors, what’s not that obvious is functional obsolescence. Functional obsolescence pertains to older homes that may not have updated light fixtures or an older style kitchen that hasn’t been updated. Homeowners sometimes ask why updates are important at all. Well, for the simple reason that updates are more desirable for buyers. Then sellers will give the excuse that buyers may not like the updates they choose. Then it’s up to us to explain to sellers that we are looking to make their home as appealing as possible to the largest number of buyers we can. Luckily for the seller, these fixes are relatively simple so we call these curable.

What about the situation where the home has four bedrooms and 1 bathroom? That’s a form of functional obsolescence that we call incurable as the fix is more complicated and costly than the ones we just described.

The last type of depreciation we’ll talk about is external obsolescence. External obsolescence pertains to situations and conditions outside or beyond the homeowner’s property. For the most part, these conditions are incurable because the homeowner cannot fix the condition. Examples may include a nearby electrical tower, or the property borders an industrial park that produces undesirable, gut wrenching odors on a daily basis.

An experienced realtor can help homeowners understand why their home may not fetch the same price as other homes in their neighborhood because of these previously mentioned deficiencies.

My House Is The Same As My Neighbor’s!

THE BACKDROP

Undoubtedly, one of the most important tasks a listing agent performs is the determination of the “probable selling price” of their seller’s home. Sellers mean well and I appreciate the fact many have done their homework and have somewhat of an idea as to what the listing price should be for their home. In fact, I will often ask the seller prior to coming out to their home to conduct the formal listing presentation, the listing price they’d like to set for their home. Why did they pick that price? Many times, their reason is “my house is the same as my neighbor’s house” and it sold for X amount.

HETEROGENOUS REAL ESTATE

The seller’s house may have been built at the same time as their neighbor’s, may have the exact same floor plan, identical upgrades & amenities, similar lot size, etc, etc.
However, real estate is heterogenous – no two properties are exactly alike. Each property is unique and therefore, even though two properties appear similar, one may have more value than the other based on where in the neighborhood the house is located. We call this situs value.

SITUS VALUE

This is critical for the home seller to understand so they price their home appropriately. During the listing presentation I make sure to fully explain situs value as it pertains to properties that are comparable to the seller’s home.
During a recent listing presentation to a seller whose home was on the market for six months and left the market unsold (aka expired), the situs value explanation opened the seller’s eyes as to why the home didn’t sell.
Two of the comparable properties were located on the golf course and one of the two was down the street from the tennis courts. Yet the seller’s property was priced the same as those two properties. The seller’s home was overpriced by more than $30,000 and not only did it not sell, they had received zero offers.
We’re confident with the new price, the home will sell and the sellers can comfortably “turn a new page” in their lives.

Cmon’, Big Money!

You’d think you’d hear the above mantra at a casino craps table rather than at a listing meeting prior to marketing a seller’s home. “C’mon Big Money, Big Money, let’s go, $450,000! (dice fly in the air)”. Well I’ve got some news for you, listing at that price when the probable selling price is $45,000 less, is, more or less, gambling. And you’re going to lose in more ways than one.

First of all, if you truly want to sell, it will take you a long, long time. You see, the $405,000 buyer you NEED to buy your home will be turned away by the $450,000 list price. They will not even show up to see your home! Why would a $405,000 home buyer want to see a home that is priced 10% over what they can afford? Not going to happen. So, the actual buyer who can afford your home is being eliminated from the potential buyer pool.

Secondly, the $450,000 buyer that sees your home will be disgusted. Disgusted because they’ve seen what $450,000 can buy them, and guess what, your house comes up way too short. Essentially, they’ve compared your home to other $450,000 homes feature by feature, and they immediately conclude that your home is significantly overpriced. And they are buyers! Can you imagine what a knowledgeable real estate professional will say? Not only that, but that real estate agent will not bring another $450,000 buyer to that home. So, the buyer you believe you’re attracting, will also be slowly eliminated from the buyer pool.

So, over the course of several weeks, you’ll begin to notice that nobody is coming to see your home: neither $405,000 buyers nor $450,000 buyers. Make sense? Your buyer pool has been reduced to a slow trickle if not completely dried up.

If you still need to sell, guess what happens at this point? Price reduction(s). Maybe more than one price reduction. How many price reductions will it take to get to the actual legitimate sales price? That’s up to you. Do you actually KNOW what the probable selling price of your home should be? Your agent should have run a comparative market analysis to determine the probable selling price of your home. And if they did, why didn’t you heed their advice? Never mind. I know why.

You see, many homeowners have such strong emotional ties to their homes and believe these “feelings” somehow contribute to the overall value of their home. Sorry, but the real estate market doesn’t care that you’ve spent 20 years raising your family there and that you have too many memorable moments to let the home go at $405,000. It doesn’t work that way.

How do I know? Well, in short, I’m a full-time professional real estate consultant and it’s my job to be an expert on my local market. I’ve done my homework, I’ve selected similar properties for comparison, I’ve run the numbers, I’ve made the appropriate monetary adjustments, I’ve assigned calculated weights to the adjusted prices, and finally, I’ve come up with a probable selling price for your home. The current market dictates the probable selling price of your home, I just utilize current market data to calculate that price and communicate that to you. In affect, I’m just a messenger. In reality, since I get paid on a percentage of the sales price, don’t you think I’d prefer the highest price possible just as you would? You betcha’.

In closing, if you truly must sell your home, why gamble? Select a real estate professional that knows the local market, can run the numbers for you and pinpoint the probable selling price of your home. Based on this probable selling price, both you and the real estate professional can agree on the listing price for your home.