June 21, 2008

In This Market, The Price Must Be Right

That was the gist of syndicated real estate expert Lew Sichelman’s Sunday column.  In a buyers’ market, people are looking for deals. 

In today’s market, if your place isn’t priced correctly, it probably isn’t going to sell. More than likely, it will languish on the list of unsold inventory until the market adjusts back up to your asking price. And that could be months — or even years in some places.

How will you know what the right price is?

“I have learned that a great strategy for sellers who are serious about getting their homes sold is to price the property ahead of the market,” said Michael Selvaggio, president of the Council of Residential Specialists and a broker in Townsend, Del.

In a seller’s market, Selvaggio said, there’s nothing wrong with setting your price a little higher than the last one because prices are steadily rising. But in a flat or declining market, your price should be a little lower than the last comparable sale.

And not just a few percentage points lower, either. “When was the last time you rushed out to the mall to take advantage of a 2% sale?” asked the 32-year real estate veteran. “You need to have a real sale, so how about 5% to 10% off, for starters?”

That’s exactly what I did when I sold my home in San Diego in 2007.  The market had slowed way down, and nothing was selling.  Most comparable homes were priced in the low $500s, but there was a foreclosure for $505,000 and a short sale pending for $475,000, and nothing was moving.

I cut the price to $499,000, and then quickly to $489,000, which attracted the attention of the short-sale buyer.  She offered $483,000, and I accepted.

Between the real estate commission, improvements and the price reduction, we lost about $70,000 of our $200,000 down payment, which was made possible by a 2005 home sale.  But today, the same home is selling for under $400,000. 

I was lucky to have the price flexibility to absorb the loss. The folks who bought for little or no money down at the peak of the market are going to have to negotiate a short sale (difficult to do) or face foreclosure. 

Take this home at 642 N. Curson Ave. in the Fairfax District.  This person paid $1,050,000 for this 3+2 in May 2006, at the height of the market.  If the mortgage is a 2/28 adjustable, it just reset, and it’s panic time.  The home first came on the market on May 9 for $1,025,000 and is already down to $949,000. The listing doesn’t say “short sale,” but unless the owner is planning to write a six-figure check to escrow, that’s what it is. 

Dramatic price cuts recently helped this house at 359 N. Sweetzer Ave. sell.  The owner purchased in 2000, so, unless the house was used as an ATM, there was equity there — and thus price flexibility.

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