I was watching one of those HGTV shows yesterday. Flip That House, or Sell This House or one of those. A novice investor rehabbed a 1970’s tract home. She did a great job too. She managed an amazing transformation of the entire house. The kitchen was opened up, done in granite, new cabinets and stainless appliances. The baths were both redone with beautiful materials. She really did a great job and added some real value to the home. BUT she went 2 weeks over schedule, about $20,000 over budget and nearly tore her hair out at the end.
Just before the home was staged, the show’s producers sent in 3 real world Realtors to give price opinions. The first one says $519,000; the second says $510,000; the third says $499,000. Presumably they gave this information to the investor seller. In a camera confession, the investor says she’s stretched to her financial limits, she needs to get that money back pronto, and she’ll raise the asking price on the house to recoup her unbudgeted losses. She lists it for $539,000.
Big mistake. Sellers, believe me when I tell you that there is a long list of things that do NOT impact how much you can ask for your home for sale. Here’s a short list:
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How much you paid for the home
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How much your remodeling or improvements cost
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How much you “need” to get out of the sale
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How much your next house is going to cost
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How much your neighbor sold for last year
Things that impact how much you can ask for your home:
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How much buyers are willing to pay for it
Period. It’s really that simple. Buyers are savvy these days, and act very conservatively when it’s their half-million dollars being spent. They will only pay what they’ll pay and not a penny more. If they don’t see your home as a good value at the listing price, they’ll pass you by.
Of course parsing out what the buyers are willing to pay for your home is the tricky bit. It’s an art, not a science. If it were a science, they’d have computer programs that picked listing prices. We Realtors would all be out of a job because the computers would be 100% correct, 100% of the time, on 100% of the homes for sale. Houses would sell in a few days and nobody would negotiate over price because the computer generated price would be right every time.
That’s fantasy land. Picking the right list price is an art. It involves lots of data analysis, a history of indepth knowledge of the neighborhood, and a little bit of gut checking. But it should never involve calculating what the seller “needs” to recoup on their investment. The buyers don’t care about your needs; they care about theirs.
PS-The investor on the TV show sold after about 3 weeks on the market. She took $511,000.
Related Posts
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The HouseChick’s take on this point (the HouseChick is Kelley Koehler in Tucson)
Heather Barr is a Realtor. She's a chow hound, a gym rat, and the only political junkie in the USA who can actually keep her political views to herself. Instead, she focuses on educating her clients about the often-confusing world of residential real estate.
{ 2 comments… read them below or add one }
I really enjoyed reading this article. I don’t know how many times I have been sitting at a table doing a listing with a seller and they say, I “need” to get this much out of my house or I won’t make any money, Or, after I give them the comps and my advice, they ask me, “What do you think I can get for it?” All I can say is you can expect to get what a buyer is willing to pay for your property. It all comes down to how bad do they really want it? Most buyers are very savvy these days and will not pay anymore than they think it is worth.
Your last comment says it all.
When deciding to rehab your home you should contact a realtor for a CMA current market analysis this will tell you how much you can invest in rehab and still stay within comparables in the area.
This step should also be understood by the investor when rehabing. This is the difference in the amateur and the professional rehab flip.