Saturday, March 12, 2011

No Bad Houses, Only Bad Prices

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The real estate industry’s classic motto is “Location, location, location,” but I’ve been working in Houston’s high-end market for almost three decades and I think it’s time that homeowners are made aware that the old motto is a fossil. It’s best kept in some dusty real estate Hall of Fame, a relic from a time when a stellar location meant that you could ask for anything when selling your home.

In today’s market, overpricing your home is the number one mistake that sellers make. Setting the price above what the market dictates—no matter how great the location or property—tells buyers that you are yet another seller buying into the myth of real estate alchemy. You cannot turn lead into gold. You cannot hope to beat the realities of the market. What you need to do is be proactive and work with the existing market.


In the thousands of transactions I’ve handled in real estate, three concepts have always emerged as critical. Using them is the secret of my success and the reason why countless other realtors and customers have called me over the years to ask, “How did you get that listing to sell?” The three concepts (I call them the ThreeTions) are simple and vital for anyone looking to understand how real estate works.

#1: Competition. A lot of home sellers try to inflate their home’s price, thinking they need to set the bar high before they negotiate. Or they have a real estate agent who wants the listing so badly that she’ll tell them whatever they want to hear. But in doing this, home sellers place themselves at a severe competitive disadvantage.

It’s like a football game: you simply must know the competition. How many homes in your price range are on the market? If there are several homes in your neighborhood waiting to sell, then you must price your home aggressively—read: more cheaply than you might have liked—in order to get the buyers. If there are fewer, then you can shoot for a price that’s right on the market.

Don’t forget the simple economics of supply and demand. In particular, please don’t get blinded emotionally by what you feel your home is worth. In today’s value-driven market, you have to know the competition to compete.

#2: Attrition. So now that you know how many homes in your price range are available, find out how many of those homes are selling per month. This will give you what is called the absorption rate or rate of attrition. With this you can get a clear picture of what to expect as far as the time it will likely take to sell your home. It’s no guessing game; it’s a business calculation.

#3 Condition: How does your home’s condition compare to other homes on the market? Be realistic. What condition is the landscaping? How about the exterior paint? In what condition is the carpet, flooring, appliances, roof or interior paint?

In a buyer’s market—and today’s market is certainly a buyer’s market—updated homes sell faster than those that need updating. “Updated” means that your house has been redone in the past 5-6 years and is now comparable to recent construction. In uncertain times like these, people are holding on to their cash and thinking about the future. The need of further improvements seems much slimmer if the home is updated.

Evaluate your home like a picky buyer would and have realistic expectations. You should also be ready to improve your home’s condition in order to realize a successful sale.
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What I want to pass onto Houston consumers is this: if you price it right, they will come. But in today’s market, with the Internet enabling people to search real estate at the click of a mouse, you’ve got to price your home correctly and do it fast. Trust me, if you try to inflate, you’ll just end up lowering your price and end up with a “stale” home. Consider your holding costs, remember my three tips, and you’ll understand why pricing your home to the market is the key to a quick and (relatively) painless transaction.

PS-Three Tions has been trademarked. If you are a realtor and would like to use it, Please email me for permission. I am happy to share it.

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