How to Price a Home in a Post Pandemic – Post
Bidding War – High Interest Rate Real Estate Market
Keith Gordon | November 15, 2022
Sellers are always looking for professional guidance regarding the best list price or where to lower a list price once listed in
the MLS. What I have learned is home sellers do want honest straight-forward guidance from agents, but often receive less
than helpful answers. Being straight with sellers doesn’t means they will agree necessarily either. That is on them to decide
what is best for them and if they want to find a buyer now or wait of time. In the end it always comes down to it’s their
home.
My podcast partner Kelly Moser has an expression called “transaction breath” which I agree with which means a seller sees through any attempts by a listing agent to price a home too aggressively as just a way to get a commission.
Establishing an effective list price is complicated for sellers and agents alike especially now when the market is in flux. The real estate industry is a business which thrives off new listings and possibly soft-pandering-talk once
a seller has no offers.
I spent 18 years holding an average of 200 listings and believe I can help anyone through tough times as I went through many real estate cycles.
There is only one topic more complicated than what I am about to embark on which is why some Realtors® prefer certain real estate contracts. If you are interested in my take on this interesting topic watch my video titled: “Which
Real Estate Contract is Better for Buyers and Sellers? The FARBAR “Regular” with repair limits or the FARBAR “As-Is” contract.”
Now let talk about this new market: post 3% interest rates, post pandemic, post bidding wars and post irrational exuberance.
We all know the severe competition among listing agents naturally creates an environment where homes often get listed too high as agents compete against one another to win the listing. Being listed 12% over the market is not uncommon
right now. There are many reasons for this, but one reason in particular stands out. The real estate market in Florida dropped at least 10% between May and June of 2022 when the air came gushing out of the market in just a few days’
time.
The next factor is interest rates and inflation. In my article titled “Will Hurricane Ian Trigger Lower Home Prices in Florida? Likely Not but the Fed Will.” In this article I discuss the impact of inflation and where rates are likely
heading so I would rather leave that conversation to that article.
Right now, I am assuming everyone is priced too high. So how does one choose the best list price in the first place or decide on how much to lower your existing list price?
I think we all can agree there are no more bidding wars in mass. This too maybe a stretch but I also think we all can agree that investors will be buying less real estate as rates rise. They were responsible for 30% of all buying
action the past 2 years just as they did in 2004-2006. They are now sidelined or soon will be. They have been buying homes and condos as cash flowing properties taking advantage of low interest rates and expecting and getting high
rents. While rents remain high, I will presume they will fall back to earth as the economy softens. That said, I would expect many small-time and larger investors to feel that pressure and possibly start to undo some holdings. Zillow
is a perfect example closing their ibuyer division called Zillow Offers. Zillow closed that division after realizing their famed Zestimate was off a bit but not before posting a 700 billion loss. And from what I read most ibuyers
are in trouble as a business model. This means more inventory and less buying competition.
The overall worry is the possibility of 6%-8% Fed Funds which now stand at 3.25% and the possibility of 9% interest rate on the 30-year. This post is not about having a crystal ball about where rates are going but rather how buyers
make offers.
There are only two ways buyers make offers: either a full-price offer or a meet in the middle offer. I have a 28-minute video called “Selling a Home for High Value” that talks through every aspect of what I do to price and sell a
home, so I am not going to get too detailed here.
My point is this. Homeowners need to know that buyers only make offers if they are hopeful that the seller will counter them and meet them in the middle where they think value is. Not where the seller thinks value is.
If you wonder how I know this to be true about buyers just imagine selling 4400 homes over eighteen years. This is where I gained my knowledge. This also led me to write a book about it called “The Listing Agent” due to be release
in October 2022. My book explains in painstaking detail why sellers do what they do and why buyers only make offers when they are forced to do so.
The best example of this thinking is to use a home that has been listed for 18 days at $500k and has received no offers. The question is why no offers? Where are the buyers? That is exactly the question that I answered or attempted
to answer for sellers from 2005-2019. Most of my conversations were about “price.” Of course, there were no serious price conversations in 2021 or early 2022.
That said, as mentioned above, you are listed at $500k and have no offers the buyers hypothetically (many of them not just one) believe value is somewhere between $435-450k (12% under list and very typical of an over-priced listing).
Here is the issue. The buyers are thinking they would have to offer $400k or $100k lower than list to meet the seller exactly in the middle – which I call their happy buy number of $450. This is so because 450k is 50k less than $500k
and 50k less than $450k is $400k. This is the math that every buyer’s agent uses, and it is the only math that counts in their minds. Note to sellers: The Zestimate has never been a factor to buyers!
The backdrop for buyers is always appraisal. Often, we field calls from buyer’s agents that pose this question to us: “I see you have been listed for 75 days and my buyer was wondering if you would consider an offer at ….” What they
are saying to us listing agents is, “you aren’t going to appraise, and the buyer wants to know if you will take less.” They won’t even write the offer up
The backdrop is most if not all sellers believe they need to add wiggle room, so the buyer feels good about the home once they agree to a deal at $485-490k. In other words, the seller is looking for a negotiating battle and are hoping
for an offer at $465,000 to meet them in the middle at 485k. But here’s the problem: the seller has their value wrong. It is not $485k or $490k but closer to $450k.
Why is the seller so far off? This goes back to seller psychology. Just months ago, in May 2022, the value was here. I saw it. My neighbor got this. The buyers basically gave sellers their “case” of irrational exuberance. How do
you get that out of seller’s heads?
This math above is why overpriced homes do not get offers. Buyers simply aren’t hopeful the seller will counter their $400k offer and they are correct. Nor would a $500k listed seller take an offer at $450k necessarily either. As
mentioned above they are looking for a low final sales price of $485k. There is a $35k standoff. No agent can bridge that gap with savvy talk. This scenario will not end well for a seller in a fading market.
This is also the reason why an overpriced home listed at $500k and subsequently makes a $10k price drop (5k even worse) will fail every time. So, what is the right price drop? The key point here is I never do know exactly where the
buy zone is where offers start flowing but it does exist for all homes. This perfect list price or recalibration of list price must be found, and it can be extremely hard work and painful for all.
Final analysis:
One must assume there are no buyers within 7% of $500k if no offers after 18 days in the MLS which is my rule. The National Association of Realtors® has always published this fact: homes sell 3% under their last listed price. No offers
at $500k means buyers DO NOT want to meet the seller 3% under list. 3% under 500k is $485k. Buyers aren’t interested in making a $465k offer to meet in the middle at $485k. So, what now?
Re-price the home 7% lower at $465k and hope the $450k or higher buyer comes up and makes a full-price offer or attempts a meet in the middle at $450k. Once offers start flowing this creates data points to find value. Think of it
as a mapping out value.
My rule when listing a home or re-pricing a home is simply this: can a motivated buyer offer my seller full price. I never add wiggle room for this reason because adding wiggle room eliminates the possibility of a bidding war or
a full price offer. I do not intend on countering an offer ever to meet in the middle so that is out. As well, any agent that intends on meeting an offer in the middle ends up just negotiating with one buyer. In that case value is
never found or proved as I call it. It is just a transaction without proving the true value of the home.
My rule when listing a home or re-pricing a home is simply this: can a motivated buyer offer my seller full price. I never add wiggle room for this reason because adding wiggle room eliminates the possibility of a bidding war or
a full price offer. I do not intend on countering an offer ever to meet in the middle so that is out. As well, any agent that intends on meeting an offer in the middle ends up just negotiating with one buyer. In that case value is
never found or proved as I call it. It is just a transaction without proving the true value of the home.
Please watch my video on “How to Create a Bidding War in Any Market.”
PS…I can be rather cynical at times and here is my chance to say “The Zestimate is Dead.” Buyers don’t care about it and never did. Just the sellers. If you hold the Zestimate as some credible valuation tool, I will beg to differ
with you. Don’t waste your time or energy writing Zillow as their answer is a mindless twisting of words. It is a worthless gimmick. Listen to my Zillow Rant or google “Bubble Are For bathtubs.”
ALL ARTICLES
FEMA, Homeowners Insurance, Citizens and Waterfront homes, low lying areas of
Florida
Keith Gordon | November 15, 2022
Florida has recently witnessed the loss of at least 6 major writers of homeowners insurance partly due to fraudulent roof claims along with a string a windstorm insurance claims. Rising water, more severe storms, the cost of new construction
or the cost or rebuilding homes after these nature disasters has the market on
edge.
How to Price a Home in a Post Pandemic – Post Bidding War – High Interest Rate Real Estate Market
Keith Gordon | November 15, 2022
Sellers are always looking for professional guidance regarding the best list price or where to lower a list price once listed in the MLS. What I have learned is home sellers do want honest straight-forward guidance from agents, but often receive less than helpful answers. Being straight with sellers doesn’t means they will agree necessarily either.
