While some areas of the nation are at long last reporting a slowing of sales, the valley’s market is continuing to power forward both in rising sales and appreciation. Real estate has always been area specific, so while national trends are interesting, they are not particularly meaningful when interpreting a local market. New listings to MLS in the first quarter of 2018 for Maricopa and Pinal County under 400K are logging the lowest numbers for a first quarter since the Cromford Report began tracking in 2001. Not surprisingly given the low supply, appreciation is higher than it’s been in the last several years. To quote the Cromford Report:
“The annual $/SF for all areas & types is 7.3% above this time last year. The increase last year was 5.2%, with 5.5% the year before that while 2015 gave us 5.3%. Back in 2014 we were still experiencing the coiled-spring effect and $/SF had jumped 17.7%.”
Given the amount of market strength most sellers have (particularly under 400K), it would seem improbable that sellers are still managing to give away thousands, right? Well history has a terrible habit of repeating itself – so just like in the past (anyone remember 2005?) - overheated seller markets don’t just cause trouble for buyers. Yes, seller markets can still cause problems for sellers.
Here are a few of the top mistakes we currently see sellers making:
1. Thinking that having one buyer is a success story. As sellers and agents so often say “we just need one buyer” – and of course there is some truth in that. But one of the perks of a seller’s market is the potential of multiple offers. Too many sellers (and their agents who should know better) take the very first offer that they receive. That may be a great strategy in a buyer’s market. The premise “your first offer is often your best” - is based on the fact that long days on the market create the perception the property is over-priced or has condition issues making it harder to defend value to buyers. By contrast, in a strong seller’s market taking the first offer eliminates the option of multiple offers. From our years of experience, creating the opportunity for multiple offers is how we really maximize your profits. Agents who don’t do this (which sadly is the majority) or “for sale by owners” who find one buyer are likely giving up thousands of dollars.
2. Thinking the new business models of online offers or investors are paying “fair market’ value. It is interesting to us, given that we have seen about every business model in our 40 years of practicing real estate, that this business model of online offers is getting a lot of hype. Admittedly they have tapped in to the public’s desire for Amazon type selling. But at the end of the day, they are investors who don’t represent the homeowner. Their pitch says things like “commissions are too high” while charging “customer experience fees” averaging 12% - far more than any commission. Or they say “this is a competitive offer” while eliminating any competition – costing sellers 10-30% in unrealized net dollars. Also, while telling sellers there is no need for them to go on the market, these same investors always put their homes on the market when they resell them. Shouldn’t that be a dead giveaway as to how to get top dollar? It would be far more accurate if they said “we are investors who want to buy your home for less than it is worth and then re-sell it for a profit”. But then, that wouldn’t look like a sexy new business model would it? Take away the online component, and this is the same old investor model that has existed since we began our careers.
3. Thinking that preparing your home for sale is a long and expensive process. Most sellers overthink and over prepare for the home sale process. The truth is that many homes can be sold in their current condition. We sold a house that had the garage caved in and was tagged by the city as unlivable until repaired. We had multiple offers, sold it in 4 days, obtained over list price, and the seller made no repairs.
4. Thinking that you have to show your home 24/7. Depending on the price range, we have had “weekend only” sellers or even “one weekend only” sellers. This is a supply and demand equation. The higher the demand and the lower the supply, the smaller the window for showings required to sell. Many sellers can allow one full weekend of showings, review the multiple offers on Monday and be under contract by Tuesday.
4. Thinking that all agents are the same. Oh heck, we’ve taught you better than that, haven’t we? One of the pitfalls of a strong seller’s market is the amount of inexperienced agents it attracts. Even the “experienced” agent does around 6-10 deals a year. If you subscribe to Malcolm Gladwell’s theory of 10,000 hours of experience are needed to get expert at something, most agents will be retired before they hit 10,000 hours. In the last year alone we helped over 300 sellers sell.
5. Failing to be aware of market value. The problem with either improving or declining markets is that history is not repeating itself. Therefore using only past sales will not tell you where the market is now. In evaluating pricing, we examine the supply/demand ratio in your neighborhood which determines value. Even then the market can move more quickly than can be seen. Demand can be very volatile while supply is not. That is why exposing the home to the most buyers possible secures the highest price – it accommodates demand volatility.
6. Thinking that commissions are where the most money is saved or lost. Shakespeare said “A rose by any other name would smell as sweet”. Perhaps, not the best analogy when discussing the second most dreaded word in the English language “commissions” (the first being “taxes”). The truth is that the seller is going to pay someone to sell their home. Sellers will either pay by hiring a professional, paying “seller experience fees” to an instant offer company, or selling to an investor who “charges nothing” but takes a minimum of 10-30% off the price. Rather than quoting Shakespeare, perhaps the better quote is “there is no free lunch”. With that said, are we still an advocate for a flexible commission structure? Sure – we too love to save money. Just don’t give away way more than the cost of a commission in an attempt to avoid commissions. Instead make sure you are paying for the best representation money can buy.
Thank you for allowing us to share our thoughts on what pains us the most – watching sellers give away their hard earned equity. As always, we are here to serve you.
Russell & Wendy Shaw