After observing the Real Estate market as it is today, I thought it might be a good idea to talk about “listing a house for sale”.
Whereas the estimated market value range includes the “hoped for” sale price, the list price is the bait; the important inducement for buyers to view the property.
There are two schools of thought here. The first, the often used approach, is to list high and periodically reduce the price until a sale is achieved. This is the more common method because, to win the listing business, it is easier to placate a novice seller who wants to try first for a higher price. But without a price reduction, to more realistic levels, listings often end in expiry.
If you seemed to share their inflated value perception of their home, your seller will love you. But as weeks crawl by with no nibbles, that love rapidly fades to frustration, anger or disappointment.
The second school of thought involves putting your best foot forward, so to speak, by listing realistically at the outset.
If you perform a statistical analysis of the list prices of sold comparable properties, the original asking prices prior to any reductions and the DOM (Days on Market), you’ll probably discover that the properties that were realistically listed from day one, all sold relatively quickly – without the need for price adjustments. Typically, the listings that lingered longer started out too high and had to be reduced, sometimes more than once, before finally attracting a sale. There’s only one conclusion; presuming that every sold listing gets fair market value, the list price merely determines how long it takes to get it, and at what “meeting point”.. In other words, the more over-priced the listing, the longer it will take to sell. In an average active market, with a realistic original list price, a property should sell fairly fast. Or after one or more price reductions, it should sell when the asking price finally reaches sensible territory. I always say, “swap positions – put yourself in a buyer’s shoes. If you were the buyer, would you buy the property at that price?”
Setting the right initial asking price is, after market evaluation, most critical in the entire listing process.
If homeowners fail to list right, they may grow long in the tooth waiting for a solid bite. They may believe that asking price is, as I said earlier, almost irrelevant because a buyer can opt to offer whatever they choose. This may be true, but it most certainly is very relevant. Generating an offer early in the game often renders a higher sale price because the seller – with a brand-new listing – is in a superior negotiating position. The property has not been long on the market; it’s not a stale listing. Also, in a hot market, the odds are higher that with an enticingly fair asking price, a buyer competition could ensue. And since buyers prefer to avoid a competition, if the list price is realistic, they’ll get out early to view it before a feeding frenzy takes place – and offer fairly, sometimes generously.
The asking price can make the difference in not only how long it takes to sell, if it even sells, but also indirectly, what final sale price is actually achieved. It’s not complex; price too high and there’s no interest from buyers. By setting the listing price lower, but still too high, your listing may get attention and showings, but buyers refuse to waste their time or risk insulting a homeowner.
Remind your seller; as they have the advantage of your price advice, buyers have the same benefit from their own agents. In years past, novice buyers were more easily duped by unscrupulous agents who will only tell you what you want to hear. But thanks to the internet, our evolving industry standards and the popularity of buyer agency, buyers are no longer so ignorant. Of course, set a list price too low and your client could conceivably under-sell their home, or depending on market conditions and the property, generate multiple bids.
Plainly put, list price determines the volume of buyer activity. And a high volume of viewings obviously increases the chances of a quick sale at a better price. To demonstrate, here’s an exaggerated example: if a home is realistically valued at, say, $700,000 and you price it at $850,000, how much action would it generate? Obviously not much. And conversely, what kind of interest would result from a list of $650,000? I've come across a semi-detached home, in Mississauga, listed at $699,900 which sold at $805,000! Point made. However, bear in mind that this need not always happen. It also depends on what the property has to offer and the time it is listed for sale - 2 important factors.
The problem with the policy of accepting over-priced listings is that the seller loses the advantage of typically the most active period in the selling process – the first couple of weeks, or longer, depending on your local market conditions. There’s always an average DOM; know it and use it. Statistics can be powerfully convincing.
Thanks to the fantastic exposure provided by the internet, they’ve already discovered, maybe viewed and rejected current inventory. When a new listing appears, but in their, or their agent’s opinion, it’s not priced competitively, they ignore it and/or await a price reduction. However, if the asking price is fair, they contact their own, or the listing agent, to arrange an immediate viewing.
Have you ever had a buyer ask how long a home has been listed for sale? I’d say you’ll answer yes, many times. If you told them it’s a brand-new listing and they liked it, they often made a reasonable offer immediately – or should have if they were smart. If they’d felt that the DOM was excessive, they may have automatically wondered or even asked why no one else wanted it. A stale property listing, even at a subsequently realistic lower price, often brings buyer indifference because they suspect it’s over-priced, has serious defects or is owned by an unreasonable seller – or all three. If they’re still interested, count on any bid being low. Innumerable listing contracts expire due to improbable list prices and associated unreasonably long market exposure. Listings that have been around for months on end with numerous price reductions – or none at all – if they sell, will attract a price below what might have been obtained if the seller had listed reasonably in the first place.
When the market strongly favours sellers, a homeowner can – within reason – price their property however they wish. The actual asking price is less critical when there are oodles of eager buyers chomping at the bit to bid. But when a buyer, or balanced market prevails; when listings are plentiful, the list price is definitely a key factor in attracting attention. A reasonable asking price sends the message to your peers that your seller is fair, serious and accepts your professional advice, which in turn, encourages showings. Without viewings, you’re guaranteed no sale. Remember, every seller wants to get the most for their property and every buyer wants to get the best deal. The market determines what the meeting point will be.
Home renovations - what should you do?
Remodeling certain areas of a single-family house is an excellent way for homeowners to add increased functionality and beauty to a property.
What to Consider Before Renovating
The return on investment (ROI) of any given renovation project is a function of local market characteristics, the condition of the residential real estate market when the property is sold, and the quality of the work performed. Historically, and on average, certain projects, such as the addition of a wood deck, kitchen and bathroom upgrades, and window replacement, have shown the greatest ROI regardless of the property's location or the state of the residential property market.
Bigger renovations are not always better, as spending more does not always ensure greater value creation. However, unless the remodeling project is designed to fix a structural issue or design flaw, it is unlikely that a homeowner will earn back more than the cost of construction. If cost recovery is as important a consideration as increased enjoyment from enhancing the property, then homeowners should consider the general tastes of prospective purchasers, when deciding which projects to pursue.
For investors remodeling rental property, the cost of enhancing it can be recovered not only at sale time, but also through the increased rental rates commanded by updated residences.
Still, homeowners need to be careful of which projects they choose to complete, since the potential value gains can only be realized to the extent that there are buyers willing to pay for the renovations.
Consider Your Location
When considering any type of project, it is essential to ensure that the improvements made are appropriate for the particular type of dwelling and local property area. One mistake homeowners often make is improving their homes well above the average for neighbouring houses. Buyers are attracted to particular neighborhoods because of the services located nearby, and because homes in that area are selling within that buyer's price range. Although a house may be improved well above others nearby may still receive the same level of interest compared to others being marketed, it is unlikely that it will command a premium well above average simply because of the extra improvements. It may get more than the average, but the return may not be enough to cover the cost of the renovation/upgrade.
Real estate agents will know when percentage value increases are higher for the average, or below-average, priced homes in a given neighborhood, and lower for houses priced at the top of their respective markets. It is during these periods of increased economic activity and increased real estate demand that improvements will have the greatest impact on a home's market value.
Time will also have an impact on an improvement's ability to increase property values. Making structural or design improvements, such as building additions or finishing raw space, will add value for a longer time frame than, say, updates to kitchens and bathrooms or technological improvements, such as new air conditioning systems, because the latter tend to become obsolete over time.
Geographic location will also have a great impact on the quickest or greatest payback from projects. For instance, the maintenance time and cost of in-ground swimming pools make it difficult to recover the cost of installation, and in some cases will reduce the overall value of a home. However, this may not be the case in the southern regions of the U.S., where extended periods of extremely hot weather make swimming pools a valuable addition for some homeowners.
Project Returns on Investment
The ultimate reason to take on any home remodeling project as an owner-occupant is the enjoyment received from living in an updated home. For those hoping to also profit from a remodeling, there are sources offering insight into expected payback on specific projects.