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Pricing their home, sellers need to be ‘eyes wide open’

January 12, 2018
By BOB and GERI QUINN - Homing In , Cape Coral Daily Breeze

Two closely related topics we have discussed frequently in this column involve the difficulty home sellers have in determining an accurate price point at which they are likely to attract a buyer for their home, and the number of overpriced homes we see listed for sale on the market. In analyzing why so many people misjudge the value of their home, we usually find a handful of reasons many sellers seem to err on the side of overpricing their homes. In the end, the final sales price received by a seller usually comes down to a basic and simple market principle. But before getting into that, it is important to have a better perspective of our current market conditions.

For the better part of the past several years, most buyers have found that we have had a somewhat limited supply of reasonably-priced homes listed for sale in Cape Coral, and a larger supply of overpriced homes sitting on the market unsold. This manifests itself in several ways, with one being how quickly a reasonably-priced home will go under contract, while overpriced homes struggle to get any showing appointments over lengthy periods of time on the market. We see this firsthand when we are working with a buyer, in that most buyers will usually go in and out of a number of homes without making any offers. Then we will go out and see a home that has just come onto the market, and as soon as the buyer walks in the front door they immediately recognize the value compared to the other homes they have seen, and they will want to write up a contract on the spot. In most cases, especially for homes priced at $300,000 and under, if the seller has it priced right to the market, it will go under contract within only days or weeks of first being listed for sale.

When this type of quick sale occurs, the sales price is almost always within 5 percent of the list price, and it is not uncommon for it to be a full price offer. However, when we track homes that do not sell quickly, which is one of several market indicators that a home is overpriced, these homes usually end-up selling for at least 10 to 15 percent below their initial list price.

One of the most important things for a seller to understand is that we are still in a very rational and price conscious market where buyers are comparing homes not so much on the basis of price, but more on how much value is being offered. So when a home sells quickly, it is most likely because the buyer has already seen the other similar homes listed for sale, and by comparison they were able to immediately determine there was an acceptable level of value in the price. It is almost always a clear indication the home was priced accurately to our current market and the buyer was comfortable enough to react, without having to overthink it, because they had already taken the time to develop an adequate amount of local market knowledge.

A fairly quick sale, within the first 30-days of being listed on the market, does not mean a home was underpriced, which is a common misperception by sellers in our market with a limited supply of reasonably-priced homes for sale. In the very few instances when a home is actually underpriced in our market, a seller's home is immediately swarmed by buyers, who would be lining up one after the other for showing appointments, to the point it would make your head spin. In a matter of a day or two of being listed, an underpriced home will have multiple offers coming in well above the asking price. This type of frenzied activity does not happen with a reasonably-priced home, which will have steady, but orderly showing activity.

Along with the fear of underpricing their home, and in their minds, effectively "giving their home away," most sellers have an understandable desire to get the highest price possible for their home. This desire for a high price can easily be compounded into a substantial pricing error by a real estate agent who is aggressively pursuing the listing without discussing the market realities to a seller. Just remember, determining an accurate price at which a home is likely to be sold is an extremely inefficient process, so the conversation with a real estate agent should be more about having a disciplined price range strategy in place versus an agent claiming the can get you the highest price. Getting a realistic price estimate from an agent that points out the potential low-end and high-end price ranges of what you may receive from a buyer, combined with a market-based pricing strategy, will be the better path.

One of the biggest reasons it is so difficult for sellers to accurately determine the price range at which they are likely to attract a buyer for their home is because the real estate market is an "opaque market" when it comes to determining the price and value of a home. An opaque market lacks the type of transparency found in other types of markets, such as the U.S. stock market, which have much more reliable sources providing "real time pricing," along with a real time flow of data and information. Although one could argue the stock market has its fair share of flaws, the opaque nature of the real estate market leads to far more pricing errors. Real estate information is often patched together and left open to the interpretation, opinions, emotions, needs and motivations of various market participants, all with different levels of experience and knowledge. This can easily lead to significant pricing errors.

All of this is why the ultimate sales price of a home will follow the simple and basic market principles of price discovery, where the true price and value of a home is based on what a willing buyer will pay a willing seller for their home. Nothing more, and nothing less.

(The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Fla., as of Jan. 1, 2018, and it was compiled by Bob and Geri Quinn. It includes information specifically for Cape Coral single-family homes, not including condominiums, foreclosures or short sales. The data and statistics are believed to be reliable, however they could be updated and revised periodically, and are subject to change without notice. The Quinn's are a husband and wife real estate team with the RE/MAX Realty Team office in Cape Coral. They have lived in Cape Coral for over 38 years. Geri has been a full-time Realtor since 2005, and Bob, who also holds a Certified Financial Planner designation, joined with Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.)



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