to put the screws to buyers-in-waiting."no brown M&M"-type contract clauses
Sometimes, the real estate market can play games with our minds. At the top of the market, home buyers imagine that sellers frolic through fields of cash, rubbing their hands together megalomaniacally as they flip through hundreds of offers, concocting arcane
At the bottom of the market, the tables turned, and sellers might have visualized buyers sitting on top of truckloads of cash, while deigning to offer them only a paltry few pennies for their Most Precious Asset.
Reality check: neither of these images are anywhere near reality. At the bottom of the market, even the most bargain-hungry buyers are riddled with grave concerns about whether and when to buy, as well as how to get through the maze of tight mortgage and appraisal guidelines. And the opposite is true, too. Even on today’s market - which is much more active than it has been in years - sellers fear making missteps and mistakes that will cause their home to lag or will result in them leaving money on the table, so to speak.
Here are five of the mistakes I see sellers make when the market heats up and buyers start biting - and some tips for avoiding them.
1. Overconfidence. Overconfidence is super serious, because it’s not a single mistake. Rather, it’s a mindset that can spawn a pervasive pattern of errors in judgment. No matter how hot or how cold the market is, as a seller, your task is to get a single home sold: yours. Until you have done that, you should take care not to make assumptions like:
- any buyer would be grateful to have your house
- you can now charge a premium for your home
- if that house got multiple offers, yours will definitely get more, higher offers, or that
- because relatively few homes are listed for sale in your neighborhood, you can get away with little or no staging or other property preparation.
Okay - so these might be (slight) exaggerations, but they’re not far off from the thoughts that can run through a hot market seller’s head, especially if you’ve been waiting for the market to thaw for a long time.
Keep overconfidence from fouling up your home sale experience by keeping in mind that:
(a) Market dynamics are intensely local, down to the neighborhood, so even if your cousin across town sold her home in 10 minutes, that doesn’t mean you’ll automatically have the same fate.
(b) Markets change quickly, and the annual summer home buying uptick might be set to slow down a bit as the kids go back to school and the weather cools.
(c ) Most homes that sell fast or for more than asking are carefully prepared to do so, with above-average staging and very strategic pricing. If you want to create the same situation for your home, you’ll need to work with your local agent to put that same level of strategy and work into your listing.
2. Overpricing. Do prices go up when buyer demand goes up? Yes, over time. That does not mean, though, that a few months’ (or even a couple of quarters’) uptick in the market gives you the power to overprice your home without expecting to see the pricing reduce buyer interest in your home, the number of buyers who come to see the place and, ultimately, the number of offers you receive.
Again, the listings that perform well in hot markets are listings that are competitively priced. The homes that appear to present a solid value for the list price are the homes that buyers will be most excited to go see and make offers on.
To boot, what makes for a “hot” market at any given time is different from state to state, city to city - even neighborhood to neighborhood. The hard, cold truth is, in your area, demand might not have increased all that much. Or, increased demand might simply give you a better chance at getting your home sold - period - than you would have had a year ago. Don’t automatically assume that a recovering national real estate market justifies cranking up the list price on your home.
Overpricing is one of most costly strategic errors sellers make in any market. Avoid making this mistake by working through the data on what similar homes have been selling for in your area with your agent.
3. Insufficiently vetting the offer before accepting it. An offer that will never close is a bad offer, no matter what price it has on the front page. And, unfortunately, the occasional ‘bad apple’ buyer is out there making extraordinarily high offers, beyond what the home will ever appraise for, with the intentional plan of demanding a price reduction when the appraisal (predictably) comes in low. There are a number of other offer flaws that are highly likely to get in the way of closing which agents can detect fairly easily, but which hot-market sellers are sometimes tempted to overlook when the offer price is sky high.
Savvy sellers take a pause, no matter how frenzied their offer process is, to work with their agents to vet offers before accepting one, taking care to:
- assess whether the offer price is within the realm of reality as an appraisal value of their home by reviewing the comps - unless the offer is an all-cash offer or waives the appraisal contingency;
- vet the buyer’s offer to ensure that a reputable lender has checked their credit, income and assets, and approved them for a home loan (again, unless it’s a cash offer); and finally
- where the buyer’s offer is all-cash or waives the appraisal contingency, reviewing account statements to ensure that the cash truly exists to close the deal (including the cash to make up the difference between the list price and the agreed-upon purchase price, if the buyer is trying to waive the appraisal contingency on a way over-asking offer).
4. Prematurely accepting an offer. Listen - if the first attendee that walks in the door to your Open House throws a stack of cash on the kitchen table on the condition that you take their offer RIGHT THIS SECOND, far be it from me to suggest that you should hold out. But I’ve never seen that happen. What I have seen happen a number of times is for a seller to list a home one day and take an offer the next day, not realizing that a large pool of other buyers who would have offered even more had simply not had a chance to physically get to the home.
In order to get top dollar for your home, you want buyers to compete with each other on price, not on sheer speed.
Sellers, you should definitely have a sense of urgency in responding to offers as they come in - especially if you get one (or more) that passes muster in terms of being highly close-able (see #3, above) and also comes in at or above the price you want. As well, some buyers do have an urgent need to know whether you’re planning to take their offer or not, and will disappear if you stall on their offer too long.
That said, I believe it’s premature to accept an offer before the property has been fully exposed to the market, meaning at any time before the average target buyer who would be qualified and interested in the property has had the opportunity to actually see it. So, if you had 200 people show up to the Open House and got 4 offers the next day, accepting one of the four might not be premature - the exposure to the market is clear from the facts that so many people saw it and that multiple offers were received.
Similarly, if your agent enters a note in the MLS that you would be taking offers at a certain time and date, that puts interested buyers in a position to see it and make an offer before the cutoff.
However, if you have had your home on the market for a very short period of time (less than a couple of days) and you get an offer that you’re inclined to take, best practice is to first ask your agent to ring the other agents who have shown or have expressed an interest in showing the place to let them know that you have an offer in hand and find out if any of them are serious about making an offer. (If so, give them a firm deadline for receiving offers.) If you do this, make sure you respond to the offer you have in hand before its expiration deadline, or get an extension, if you feel you’ll run late.
5. Failing to course-correct before it's too late. It's essential to know what milestones you should be expecting to hit at various points in your listing's timeline, based on how well-priced, well-staged listings move in your current market. And it's just as essential to have a plan of action for what you'll do to course-correct things if they don't move along as planned. Your agent can brief you on such data points as the average number of days a home in your neighborhood stays on the market before it goes pending (days on market, or DOM). From there, you can work together to put a plan in place around what you'll do, as a team, if:
Sellers who fail to make an advance plan of action for auditing the agents who have shown it to get their feedback, revisiting the idea of professional staging, lowering the price or otherwise responding to market feedback at a certain point in time tend to course-correct too late - after the place has been on so long that buyers have started to catch a whiff of desperation. And yes - this can happen, even on a market like today's.
- no one comes to see the place,
- tons of buyers come to see the place and no one makes an offer,
- buyers and agents all unanimously say they like the place, but it's priced too high, or
- your home otherwise lingers on the market much longer than average with no bites.
Buyers and agents: What mistakes do you see sellers making in your area? And what do you see other sellers doing right, to attract multiple offers and sell their homes fast?
P.S.: Follow Trulia and Tara on Facebook!
5 Mistakes Sellers Make in a Hot Market