I find it fascinating as we, The GoodLife Team, show houses across the City that they are still overpriced. I think we would all agree that housing prices have declined, yet so many homeowners (and their agents) are still living in a bubble. Their homes are priced too high.
Why? Why is it so darn difficult for a seller to come to terms with the reality of what their home is worth? Why do we, as a culture, view a home differently than any other investment?
What do I mean by that?
If you bought Yahoo stock at its high of $108 per share and had to sell today, you would understand that you could sell your stock at most for $9 per share. You might be disappointed to take the loss but if you HAD to sell you certainly wouldn’t price it at $10 per share — especially if you thought prices would continue to go down. You would feel lucky to sell it at $9 per share. In other words, I doubt you would tell your stock broker “I don’t care that it is only worth $9 per share today, I have over $100 invested in that stock and I need that money to pay off my credit card.†Your stock broker without hesitation (except for a quick laugh) would let you know that the market does not care how much you paid for the stock; the market does not care that you need the money you have invested to pay off your credit card. A buyer will pay the market value of that stock. They will pay the $9 per share.
And so it is with the housing market. A home is an investment. And the fundamentals of investing and economics apply. In a declining market, a buyer is always looking for the best value – they are looking for the “dealâ€. We accept this principal with other investments, so why is it so difficult to accept with regards to the value of our homes?
I notice that even with having all of the market statistics (facts and reality) sellers still think that ‘their’ house is better than everyone else’s and therefore is entitled to a higher price than the same house down the street. People feel that they are unique and special. I guess it therefore stands to reason that their houses are also special. And to add fuel to the fire, as a homeowner personalizes and customizes their home to make it more like them (by investing more money in it), it begins what I call ‘My home’ – an ’extension of myself’ syndrome. The syndrome can be described as the intrinsic value a seller places on their home as a result of having lived in it and improving it according to their liking. Their identity becomes wrapped up in their home. This ultimately shows up as an unrealistic price that the seller thinks their house is worth when they go about selling it — they really think a buyer will pay more for that very special extension of self. Problem is – they are wrong. Buyers just don’t care.
Yep. The cold reality is that buyers don’t care. They don’t care what we paid. They don’t care what we invested in our special curtains and upgraded ceiling fans. They don’t care about the time we invested in our flower garden. They don’t care we need that additional ten grand to buy our new house. They are indifferent that we are taking a loss. In any market, a buyer only cares about their situation which requires finding the best house at the lowest price. In a declining market like today, the ‘lowest’ price is the home with a ‘deal’ price attached. Bottom line: Buyers do not buy overpriced homes in a declining market.
I urge you as home sellers to consider your home like a piece of stock on Nasdaq. Check in with your self and make sure your ego or identity is not wrapped up in your home. And then ask yourself, “What would a buyer pay for this investment in this market?â€
The problem with bubbles … limited air. Wake up from your bubble before you suffocate.
Krisstina Wise
Next month’s article – “Are you out of breath – still chasing the market?â€
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Very well said and all prudent sellers should take heed or take their homes off the market. It is time to wake up and stop wasting a realtors time and marketing dollars as well as a potential buyers time. Donald Trump did not get rich by selling the house he lived in and neither will you. Listen to the market and set the price competitively and you may very well make a profit, just not enough to retire to the Bahamas!
Doug Stewart,
Senior Associate
The GoodLife Team
Krisstina, I absolutely LOVE how you phrased the “are you still living in a bubble†article! Happy Thanksgiving and congrats to you in advance on your successful new endeavor!
~Sue Adler
Could not have said this better myself, Krisstina.
We, as Realtors, are often the basis of the problem, afraid to speak the truth for fear of not “believing” in the value our clients, in the selling mode, seem to demand.
The truth always emerges.
And the truth must begin with us.
I will have to take exception to your article… I really don’t think that a home is an investment like the stock market… I won’t get into any details, but I do have arguments with your premise… Of course, there are also stock brokers that work at a discount and for fixed fees…. Now that’s an idea that you sure don’t hear being espoused by realtors…
John, Thank you for your comment. What I can say from over 10 years of experience as one of the top real estate agents in Austin, is that buyers always look for value. In a declining market they look for a ‘deal’. I agree with you, I don’t think it is as black and white as purchasing a stock (the analogy was to make a point) … but one thing is true … buyers will not pay more than the market says that the house is worth – and a good buyer’s agent will always make sure of that. A good listing agent will bring forth the ‘real’ market value of a home and produce a seller pricing strategy in order to maximize a seller’s return.
Regarding commissions … from my experience, I haven’t noticed that commissions all that often affect the price that sellers place on their home. In other words, a seller typically chooses to price their home for the same price despite the commission rate charged. The commission rate affects the net profit/loss a seller realizes not the list price. For instance, if you have two sellers who have a home with a market value of $250,000 but one is charged a rate of 5% and the other 6%, they both will list their home for $250,000. They don’t use the lower commission to produce a price advantage. For that reason, I did not talk about commissions in my article regarding seller pricing theory. On a commission note however, we at The GoodLife (any many other agents I am aware of) have flexible commission structures, depending on the relationship with the seller, the specific situation, the list price, etc.
I live in California where all sales prices are disclosed to the county and reported in real time to the market. You guys are a non-disclosure state. So, you don’t publish your recent sales readily. I should be able to go to the internet and see all the recent sales without talking to a realtor. (I may talk to a realtor later but fist I like to do my own analysis)
People in Austin are always reporting “list prices” or “number of homes sold” or sales to list price rations. Those are all helpful measures but nothing like “price per sq foot – SOLD”. That’s the real market price and sellers need to be confronted with that in real time.
Kudos to the Goodlife Team for presenting as much data as they can in your state. (I’d like to see rolling 12 month periods for 7 years by zip code to take the seasonality out of the numbers)