Top reasons why homes aren't selling in a seller's market
The title of this column almost feels like the “Top 10″ segment on David Letterman’s Late Show, but this list is no joke.
That’s right: There is no humor in getting your home and keeping your home ready to show at a moment’s notice all day every day and then never receiving an offer. In fact, I would say it’s downright depressing.
So how is it possible that in a seller’s market there are homes that have not been able to sell? It is a great question and one that I am hearing more often lately. So let’s explore some of the most common causes for “not selling in a seller’s market.”
1. Overpricing: I have mentioned before that only 30 percent of buyers are willing to pay up to 10 percent over fair market value for a home. If it is priced more than 10 percent over market, the percentage drops even more. So overpricing your home eliminates 70 percent of your potential buyer pool on day one. In an improving market like ours, there is a little breathing room when it comes to pricing. But I mean little. One might be able to price a home at $225,000 instead of $220,000 (the current market value) and count on appreciation to pull your value up. It does happen. However, in our example the difference in price is only 2.2 percent and the seller would still need to be prepared to adjust if the market did not respond in short order. This is where a Realtor and their seller must have a clear understanding of fair market value based on recent sold and more importantly (in my opinion) pending comparables.
2. Competition: “It’s a price war and a beauty contest.” I have said that a million times and it still holds true today. The moment that a seller decides to sell their home they have also decided to enter a contest. A contest in which the competition changes almost daily. One day you might have three homes that you are competing with and then wake the next day to find that you have three more. Double the competition in 24 hours! Can you see why staying ahead of the market is important? A seller must also know how many homes are selling each month (absorption rate). If three homes are selling each month and there are twelve for sale in a given area, then it will take four months for all of them to sell at the current rate. AND if you must sell in the next 30 days you better know that you are confidently in the top three when it comes to condition and price. Otherwise, you will be waiting until next month.
3. Deferred maintenance: Yes, it is true that in a low inventory market buyers are more forgiving when it comes to the condition of a home. That said, I believe that it is more accurate to say that buyers are willing to overlook functional obsolescence and outdated areas of the house. They are not, however, too excited about inheriting a lot of deferred maintenance. When buyers see repair items that should have been repaired by a seller but were not, it begins in their minds a narrative of habitual neglect. And in many cases, a buyer will choose not to consider the home for purchase. If a seller’s home is in disrepair, then it must be repaired before it can compete in the open market. If it just needs updating, price it accordingly and jump into the race.