I write lots of words about prices. Pricing. Price. They sounds the same, but they’re different. Pricing, that’s what we do in hopes of encouraging a buyer to offer us their price. Their price may not match our price, but a buyer generally doesn’t need to buy your particular home as much as you’d like to sell your home, so the buyer’s price is more important to me. The prices of a neighborhood are important, but only as they help you with your pricing, which may or may not lead to a buyer putting a price next to his or her signature. These prices and their pricing are everything in real estate, so it would be hard to say that I write too much about them. Would you rather I write fiction again? I didn’t think so.
Back during the hysteria of our now-burst bubble days, we would price properties like this:
Broker: “Hi Seller, how much would you like for your house?”
Seller: “What’s it worth?”
Broker: “One million dollars!!”
Seller: ” That’s disappointing.”
Broker: “But, you only paid $200k for it like six years ago.”
Seller: “Whatever. I want $1.5MM”
See, the conversations weren’t very interesting, because the seller usually won, and the broker usually listed the house because why not? The house next door was listed for $1.5MM, too, so that pricing seemed at least ballparkish. These were the good old days, when sellers could be bold and stupid, and buyers would adopt the bold, and generally the stupid, too. Prices soared, people laughed, and that pricing led to neighborhood prices. And then, as we all know, things took a turn.
The smart sellers saw the coming tumult, and they undercut their neighbors prices with their own lower price, and neighboring sellers were mad but buyers were happy enough. The new prices were lower than the old ones, but the prices had much more dropping left to do. That’s why the sellers who took immediate losses, no matter how painful, generally fared much better than those sellers who clung to their old prices and then slowly chased the market downward. Initial corrections paid off and allowed some sellers to avoid most of the damage.
Today, prices are on the rebound, and sellers see this and think that it means that the sky has indeed become, once again, the limit. The prices of new listings nationwide are somewhat high, which brings to the forefront a lesson that we should have learned from 2009. In the same way that pricing under your neighbors home back then gave you a chance to sell more quickly and thus limit a loss, or lock a smaller gain, there is an opportunity today for sellers who look once again to their neighbors.
It goes like this. Your block has three homes for sale. They are all new listings. The market, you’ve heard, is hot. Your home was worth $500k at the peak, and at the bottom in 2011 it was worth $300k. Today, the listings on your street are all at $499k. This is a considerable rebound, and you know it. The recent comps on your street are at $420k, and you know this, too. Because you’re smart, which is why you’re reading this. You are looking to list your home, and your Realtor of choice brings in a shiny booklet (I have no such booklet), and it shows you that the list prices of your neighboring homes are all $499k. This is high, but everyone is doing it. Your Realtor suggests a $495k list price, because your home has that grapevine wallpaper in the kitchen, near the ceiling, and no one likes that anymore.
You, as a seller, are faced with a decision. You’d like to sell, because the home you want to buy just came to market a few blocks away. Over where the fancier people live, and you’d like to be one of them. Your mortgage is only $150k. You see the opportunity of what you’d like to do, and you have to price your home accordingly. You could list for $495k, and be a house on the street with the other homes for sale. Or, you could do something perceived as rash, dramatic, and you could list your home for $465k. Your neighbors won’t be happy, but you’re trying to trade those neighbors in for the fancy neighbors anyway, so it doesn’t matter much.
The opportunity today in the market is simple, and easy to see. Current list prices are generally seeking to beat the market, even though lower list prices- ones that make your home even more attractive- are still market beating numbers. Look to the comps, price slightly above them, as long as you’re still well below the active comps. Active comps are the housing equivalent of daydreams, and they rarely come true. Let your neighbors dream those big dreams, and then beat them to the next buyer by listing under them. You’re still beating the market, and while they won’t invite you to their next block party, you must remember that’s a good thing. You never liked that block anyway.