Pricing a home for market: it very well might be the single most important element of a successful home sale, and probably the very reason most sellers should think twice before attempting to sell their home themselves.

I say this as a Realtor and a home owner. No one knows better than myself the sweat and coin that I poured into my home, which my wife and I bought as a foreclosure. We had to rehab the septic system, replace the windows (all 15 of them), hang cellular blinds throughout, replace the attic insulation, sheet and replace the roof, update the kitchen, paint the exterior…well, you get the idea. Knowinig how much time and expense we put into our home, and staying aware of the neghborhood values and the lack of updates in many of those homes, it’s easy for me as a home owner to assume that our home would warrant at least 6-8% more than the market average. As a Realtor, my experience tells me that I’m not objective, and my lack of objectivity might cost me money in the long run.

What do I mean? Citing a collegiate study of the real estate market in California, an article published in Forbes magazine references a couple of statistics that prove a concept that’s counter-intuitive to most sellers: list your home for too much, and it could cost you more money than if you had listed it for less to begin with.

A mispriced home sits on the market longer, and eventually sells for less than a similar, correctly priced home. So found John R. Knight, a professor at University of the Pacific. In his 2002 study, “Listing Price, Time on Market, and Ultimate Selling Price,” he examined 3,490 Stockton, Calif., homes and found that sellers who didn’t reduce their prices sold for 97% of the initial list price. Homes with a price reduction sold for 88% of initial list price.

Let’s break this down to brass tacks: let’s imagine a home that is priced in-line with the market at $400,000 (assuming exhaustive work on behalf of the real estate agent using comparables in the neighborhood). Let’s then say that a comparable neighboring home goes on the market for $425,000, or 6.25% higher (in my experience a scenario not unlike this one isn’t uncommon at all).

As you can see in the image above, based on the statistics derived from the University of Pacific’s study, the over-priced home sells for less money. Over-pricing a home leads to more days on market, more days on market leads to less traffic, less traffic leads to lower prices and even lower offers. There are few things as difficult as explaining this to a seller with unrealistic expectations, but citing a college professor doesn’t hurt!

Our own experiences support these ideas. If you’re thinking of selling, regardless of whether or not you want a “quick” sale, think long and hard before pricing your home above the market averages in your neighborhood. Oh – and call a Pickett Street team member and we’ll make it that much easier for you!

Link to original Forbes Article

So, how’s the market? If there’s a defining question right now in Real Estate, that one certainly would qualify. And the undisputed champion answer would have to be: “Depends”. In the Northwest, and particularly here in the immediate shadow of employment giants Microsoft, Boeing, Weyerhaeuser, Starbucks, and the growing bio-tech industry, with players from Zymogenetics to Corixa, along with technology and gaming innovators like Microvision, Infospace & Nintendo, we have been blessed the past few years with an exceptionally strong housing market.

So, when our friends in the media start trotting out housing fears as their lead story every night, it can’t help but become fodder for watercooler and cocktail party conversations across the country. Then again, if you’ve had a marketing 101 course, you know that the top 2 attention-getting drivers for advertising are #1-Sex, and #2-Fear. Recognizing that it’s not that easy making Real Estate Sexy, it’s understandable that Fear has become the currency of choice.

Now, to get back to the question at hand- how is that market? Well, it depends on your needs- If you’re selling, be sure you need to sell. In a buyer’s market, sellers are at the mercy of the market, and we are in a buyer’s market. Now, for all you buyers out there, let’s be clear on what a buyer’s market means; contrary to popular belief, it doesn’t mean that if you wait long enough, you’ll get to buy that dream home for pennies on the dollar. A buyer’s market is also, historically, the normal condition of most housing markets. It is by definition, a balanced market one in which the available inventory is at a sustainable level relative to demand. This has typically meant an inventory between 4-6 months supply for most markets.

Again, this is a bit of a generalization, as real estate is not a portable commodity, and no 2 properties share identical characteristics- even identical floorplan homes within the same development are different with respect to the neighboring properties, including but not limited to: view, noise, corner lots, traffic speeds on the street, retention ponds, etc., all of which can play into the value of that property.

So, if you’re a seller, this is the time for a gut check, and while you’re preparing the to-do-list- be prepared to answer this: what is driving my desire to sell? If you’re wanting to move up, do you anticipate having sufficient reserves to make the move without selling? If not, how will you bridge the gap between your current home and your new one? If you were on the planet last August, you know about the Mortgage Meltdown of 2007. As a result of significant changes in the mortgage industry, many of the high-risk, easily acquired loans- namely the zero down, interest only, stated income instruments that were favorites of the speculation crowd, no longer exist. They aren’t just very difficult to get, or available to a special crowd with teaser rates- they flat out don’t exist- gone the way of the dodo, and other deservedly extinct species.

That said, if you’re looking for a respectable deal on a home for yourself, or a rental/investment property, this could be the opportunity you’ve been holding out for. With interest rates once again in the range of historic lows, home prices being clearly a negotiable point, and a wide variety of options open to the discerning buyer thanks to rising inventory, this is looking like a prime time to be in the market. However, there are those who will put the brakes on, and question why they should buy now, rather than waiting until things ‘bottom out’. My answer to this very good question is: accurately timing markets is nearly impossible for even very astute investors.

If you’re buying with the intention of being in your home for a minimum of 5 years, you greatly minimize your exposure to risk. On the other hand, if you’re still thinking this could be the year you flip your first home, motivated by the returns earned on last week’s “Flip This House” re-run, I’d be inclined to sit you down with a therapist for a quick reality session.

Keep in mind: your home is a longterm asset, not an ATM. Don’t buy with the intention of immediately refinancing- this is high-stakes gambling, with your home, credit, and financial future on the line. Paying your mortgage should be a manageable stretch relative to your income- and in most cases, it will be a stretch in comparison to what you might have paid to rent. Most people quickly learn they can qualify for significantly more mortgage than they are comfortable paying. Just because you are qualified for an amount does not mean you should spend that amount!

Review your finances with your mortgage consultant, get a good sense of what the payment will be- this should come in the form of a Good Faith Estimate – and if necessary have them run several options for you so you can see the impact various changes may have on your financial picture. Ask for APR, and full disclosure on money out of pocket, and finally, be sure you understand how much you will need to cover closing costs, as well as the distinctions between closing costs and cash required at closing.

While it’s not necessary to have every detail worked out on your financing before you start the home search, having a realistic budget can make all the difference in the location and condition of your choices. If you’re able and willing to tackle some home repair projects (again, being realistic with yourself on this is critical) you can also impact your location and pricing options.

Once you’ve got the pre-qualification out of the way, have your lender write up a letter of pre-approval. This is essentially your way of showing to a home seller that you have a bank’s blessing to put in an offer up to a certain pre-approved amount.

Now, back to the market; Rates are back in the historically low range, and the Federal Reserve could be poised to offer up yet another significant drop soon, which means your buying power increases while the long-term costs of borrowing are dropping. Whether you’re a first-time buyer, are currently a homeowner preparing to move up, or are looking to invest in your first rental property, this is what opportunity looks like.