Ruing the “Buyer That Got Away”
Sometimes, the biggest hurdle to selling a home isn’t the market, or the home’s condition, or bad marketing.
It’s the would-be Seller’s mindset.
Herewith are the four biggest obstacles that can trip up Sellers:
One. What the owner paid (historical cost).
Unfortunately for Sellers, Buyers don’t care about what they paid, once upon a time.
Buyers just want the most house for the least money.
If the Seller chooses an asking price based on what they paid — or what they paid and subsequently spent on improvements — rather than prevailing prices when they sell . . . they ain’t going to sell.
In economists’ parlance, the former are what are known as “sunk costs.”
Two. What the home appraised for when the owner refinanced.
Same analysis as #1, unless the appraisal was done within the last six months (see next) and the Appraiser knew what they were doing (not always a given).
Plus, the bar for refinancing can be lower than for a purchase-money mortgage, because of loan-to-value ratios.
Three. What the neighbor got for their home.
It’s certainly relevant how much nearby homes are selling for.
Lots of Buyers try to get the most affordable home in the nicest area their budget allows.
Conversely, a block full of foreclosures is going to be tough for most Buyers to swallow (never mind Appraisers, who need to support the value of any deal that’s negotiated).
However, unless the neighbor’s home sold recently (within the last six months), and is similar in style, condition, and size, it doesn’t qualify as what Realtors and Appraisers call a “Comp” (“Comparable Sold Property”).
Which means that you can’t price off of it.
Four. What the Seller said “No” to 3 months (or a year) earlier, when the earlier deal was at a higher price.
To be sure, this phenomenon is less common in a rising market than a falling market: I’m personally aware of dozens of local home sellers between roughly 2006 and 2009 who rebuffed offers early in the listing, only to ultimately do deals (many) months later at 5%, 10%, or even 20%(!) lower.
However, the reality is that listed homes sitting on the market typically depreciate faster than appreciating markets rise.
Translation: even in a rising market, Buyers will (significantly) discount a home that’s stale or shop-worn.
Combine all of the above, and what are the takeaways for would-be Sellers?
I see two: 1) market value is a dynamic, ever-changing thing; and 2) in Yogi Berra’s words, “it ain’t over till the fat lady sings.”
In layman’s terms . . . it’s not a deal until it’s a done (closed) deal.
P.S.: What is the biggest financial stumbling block to selling?
Owing more than the home is currently worth — a condition called “being underwater” (thankfully, it’s much less common now).
See also, “Why the Neighbor’s House Usually Isn’t a Comp”; and “Cautionary Tale for Would-be Home Sellers.”
