Resources For Buyers and Sellers

How to Sell Your House or Condo for Top Dollar in a Buyer’s Market
A special report from Real Estate Expert Bob Bruss

Whether you are a home owner, home buyer, real estate investor, and/or real estate agent, you have probably noticed the major changes in the U.S. residential sales market after March 2006. Before that date, most cities were in a robust home sales market for both new and resale homes.

I recall talking with many home builders from around the nation at the huge Home Builder’s Show in Orlando in January 2006 where they complained they couldn’t find enough building materials and construction workers to satisfy the buyer demand for houses and condos.

At that important convention, I recall the Chief Economist for the National Association of Home Builders, David Sieders, making a comment nobody took too seriously. He said in some markets 10% to 20% of the buyers were pre-construction speculators who probably hope to assign their purchase contracts at a profit before construction is completed (so they never take title to the house or condo).

That’s exactly what happened, especially in Miami and South Florida, as well as other markets where thousands of speculators suddenly put their pre-construction condo purchase contracts on the market for assignment at the same time developers were still trying to sell their original inventory. The result is a vast oversupply of vacant condos, condominium conversions, and new houses.

These speculators either had to complete their purchases or lose thousands of dollars of deposits. Many decided to take title and then hope to rent their condos or houses. But that caused an oversupply of rentals as well as condos and houses for sale!

You’re probably asking, “Why do condo developers and home builders sell to these speculators?” The answer is the lenders require a percentage of pre-sales before making construction loans and the easiest source of pre-construction buyers is the speculators. Only the strongest builders and developers can afford to say “owner-occupant buyers only.”

Additional problems causing the quiet shift in home sales markets last March and April were (a) gradually rising home mortgage interest rates which meant prospective buyers could no longer qualify for the large mortgages they could obtain when rates were below 6%, and (b) endless articles in the press about the so-called “real estate bubble” bursting, thus causing doubts among home buyers. Incidentally, I have never written articles about the real estate bubble, which I don’t believe exists.

MOST HOME SALE MARKETS ARE NOW “NORMAL.” Whatever the cause, home sales markets in most cities in the fall of 2006 are now “normal.” I know that’s hard to believe. Having been buying and selling rental houses for about 40 years, I feel the current home sales market a “normalization” from the frantic pace of the last five years when home sales in most cities escalated unreasonably fast, caused mostly by the lowest home mortgage interest rates in decades.

According to the National Association of Realtors (NAR), over the years NAR has kept records, the median U.S. resale home has appreciated about 5% annually. But in recent years, that nationwide median appreciation rate rose to an unsustainable 10% annually. It had to eventually stop.

As the economy slows in many areas, especially in hard-hit Michigan and other areas dependent on auto production and other cyclical businesses, home sales prices are affected when there are more sellers moving out of the area than buyers moving in.

Lest you think the current 5% national average home price appreciation rate isn’t very good, I recall when I bought my first property way back in the 1960s. The real estate salesman proudly told me that homes in his town (Redwood City, California) appreciated 3% in the last year and I had better buy before prices went up even more!

Some cities and price ranges are still in a “seller’s market.” A “buyer’s market” means there are more homes listed for sale than there are qualified buyers. Most of the nation is now in a “buyer’s market” or what I call a “normal market” where buyers and sellers can negotiate without the buyer worrying another buyer will outbid him in the next hour or two. In other words, it’s a great time to be a home buyer – but not such a great time to be a home seller.

When a merchant usually has more goods to sell than buyers want to buy, when those goods don’t sell at full price the merchant has a “price-reduction sale.” If the goods still don’t sell, merchants dispose of their out-of-style or out-dated products in secondary markets, such as selling at big discounts to “dollar stores,” flea market operators, and other sellers of bargain price merchandise. Just like merchants, in today’s “buyer’s markets” in most cities, house and condo sellers (and their listing agents!) find they must become very innovative to get their “merchandise” sold. To illustrate, we are already seeing creative finance home sales, such as lease-options (my personal favorite) and sellers offering installment sale financing.

Interestingly, there are still a very few hot “seller’s markets” where there are more qualified buyers than sellers of houses and condos. Why? The reasons are usually economic, with employers hiring and lots of people moving to the area. But there are also local seller’s market “pockets” based on desirable neighborhoods with good schools and affordable price ranges. As we will discover later, savvy listing agents can usually guide their home sellers to let them know if they are in a small “seller’s market” pocket within a general “buyer’s market” for the entire area.

How to tell if you are in a home buyer’s or seller’s market. By the time you read in the newspaper or hear on radio or TV that we’re in a local “buyer’s market” or “seller’s market” for homes, that market might have changed. Real estate sales statistics are based on closed and recorded sales prices. Although the National Association of Realtors attempts to maintain a “pending sales” statistic, it isn’t very reliable and is too new to have a history of accuracy. When I see it, I say to myself “That’s interesting” and move on.

But there are reasonably accurate ways to tell the condition of your local home sales market. The first method is to look at the number of houses and condominiums listed for sale and their average number of days on the market before sale. The local MLS (multiple listing service) has this number for resale houses and condos listed with the MLS. However, this number does not include brand new houses and condos because most home builders do not list on the local MLS.

As a general rule, if the average number of days on the local market is 60 days or less, that is a “seller’s market.” The result is home sellers can feel confident their realistically-priced house or condo should sell within 60 days in such a market, based on recent sales prices of comparable nearby listings. However, even in a seller’s market, some homes will languish on the market 90 to 180 days – usually because the listing is overpriced or the listing agent is doing a poor marketing job.

If the local average number of days on the market for realistically-priced homes is 60 to 90 days, it is a “neutral market” with neither sellers nor buyers having the advantage. When the average number of days on the market exceeds 90 days, that is considered a home buyer’s market where buyers can negotiate hard and sellers can’t be too demanding on the sales price and terms.

The second method to tell if you are in a local home buyer’s or seller’s market is to look at the number of month’s supply of homes for sale at the current sales pace. To get this number, simply divide the number of home sales closed during the last 30 days reported to the local MLS into the number of homes listed for sale. If the result is six months or longer, that definitely means it is a local buyer’s market with an oversupply of homes listed for sale. However, if this number is three months or lower, then it’s a local “seller’s market” where sellers can hold firm on their price and terms with reasonable confidence a fairly-priced home will sell within 90 days, usually less.

As a syndicated real estate newspaper columnist, I also look at a third method which is more difficult to quantify. It is the local newspaper advertising volume by home builders and real estate agents. In a buyer’s market, these firms have to increase their advertising. But in a seller’s market, they don’t have to advertise very much.

If you spot an increase in full-page and half-page ads by home builders and Realtors, that’s a sure sign the local market is “difficult” and these firms are forced to advertise more to keep up their sales momentum. Also, look at the terms of those newspaper ads. Currently, many home builders are offering fantastic terms, such as no closing costs, no down payment, no mortgage payments for six months, “free” front and back yard landscaping, upgraded appliances and carpets, etc. On resale homes, creative finance terms such as “seller mortgage carryback” and lease-option also indicate motivated sellers (and listing agents!).

FIVE KEY STEPS TO SELL YOUR HOUSE OR CONDO IN A “NORMAL” BUYER’S MARKET. With that background information, let’s get down to the five key steps for selling your house or condo in the “normal” buyer’s market which most cities are in today. The reason I say this is a normal market is over my 40 years as a real estate broker and investor, I estimate 30 of those years were “buyer’s markets” and only about 10 years were “seller’s markets.” Frankly, as an investor, I found it very, very difficult to buy rental houses during seller’s markets because “retail home buyers” kept bidding prices up too high to make sense for investors.

EXAMPLE: I was recently interviewed by Alex Markels for his U.S. News and World Report real estate article featured on the cover of the August 7, 2006 issue. Although we talked about an hour, he only had space for a small fraction of that interview about today’s changing market for home sales. You can read the several related articles at your public library or online at www.usnews.com. My primary message was home buyers are bargaining hard today and they are not in a rush to buy (although fixed-rate mortgages are still very affordable) unless they can get a “good deal.” Based on the positive reaction to his real estate article, Markels later told me he will be writing more articles on this “hot topic” of the changing home sales market which is of great interest to his readers.

STEP 1 – ASK YOURSELF “DO I REALLY WANT (NEED) TO SELL MY HOME?” Home seller motivation is extremely important to a successful sale for top dollar. If you are just “testing the market” to see if you can get the same amount for your home as a neighbor got for her home a year ago, you are probably wasting your time and your listing real estate agent’s time.

In the residential home sales market, sellers who test the market are known as “unmotivated sellers.” Yes, agents will take your listing, but they won’t be thrilled about your lack of enthusiasm. Signs of motivated sellers include job transfers, unemployment, divorce, marriage, family births or deaths, and foreclosures.

If you seriously want (or need) to sell your house or condo, and are not just “testing” the market, the first step to show our motivation is to get your house or condo into tip-top near “model home” condition. Most buyers do not want to purchase a fixer-upper. They prefer to just turn the key in the door of their new residence and move in.

Clean, repair, and paint should become your motivated seller’s motto. These are the most profitable actions to take to (a) get your residence sold in a buyer’s market, and (b) earn top dollar for it. However, don’t waste money on major renovation which you won’t get to enjoy and your buyers probably won’t like!

EXAMPLE: A few years ago, the owner of a house adjacent to mine was cleaning out his lifetime accumulation of “junk.” He had several “estate sales” but most of the useless stuff remained unsold. One day he told me of his plans to sell his house after he got it cleaned out. He asked me if I thought he should remodel his 1960s-style house before listing it for sale. I said “no” and suggested he just clean, repair and paint to make the house show its best. I won’t bore you with the details, but due to the seller’s declining health he never got around to taking my suggestions. The house eventually sold at a bargain below-market fixer-upper price. The buyers plan to expand and renovate the house. It would have been a waste of money for the seller to remodel the kitchen and bathrooms – but he should have painted the interior! However, he did put a new roof on the house before listing it for sale.

Fresh interior and exterior paint is, dollar for dollar, the most profitable improvement home sellers can make. Other profitable inexpensive improvements include installing new light fixtures, and replacing worn carpets or flooring, if needed. Modest landscaping improvements, especially getting the grass looking good and keeping it mowed, and adding flowering plants can do wonders to give an attractive first impression to prospective buyers and their real estate buyer’s agents.

STEP 2 – HIRE THE BEST LISTING AGENT IN YOUR VICINITY. A “buyer’s market” for home sales is not the time to be a do-it-yourself “for sale by owner” (FSBO) home seller. Yes, some FSBO sellers were successful during the home “seller’s market” of recent years. But even the best real estate agents are having a tough time today getting homes sold because of the huge inventory oversupply of homes for sale.

Compared to 2005 at this time, there are approximately one million more U.S. homes available for sale today. The result is home sellers need every possible advantage. Being a FSBO “fizzbo” seller is a big disadvantage in today’s market.

If you think you can sell your home alone without a professional real estate agent, think of all the things a listing agent does that FSBOs can’t do. The most powerful agent advantage is the local MLS (multiple listing service). With over 50% of today’s home sales being “co-op sales” between the MLS agent listing agent representing the seller and the buyer’s agent representing the buyer, without the local MLS these two agents wouldn’t meet. Equally important, a sharp listing agent will use his or her local networking contacts to let other agents who sell homes like yours know about its availability – there’s nothing like a personal phone call to get the home sales ball rolling.

More important, with over 70% of today’s home buyers beginning their searches on the Internet, usually at www.Realtor.com, and at other websites, FSBO home sellers don’t have this major advantage.

But I can hear you say “Well, in my area I can get my listing in the MLS and on the Internet by paying a MLS member agent $500 to place my listing there.” That may be true. However, that’s not enough. Those “minimum service” agents will list your house or condo on the MLS, but that’s about all the service you get. You will be on your own to advertise your home, hold weekend open houses, be available at all hours to answer phone calls, and try to negotiate a sale if you are fortunate to locate an interested buyer.

Another big problem for FSBO sellers is preparing a legally-binding sales contract. Do you have all the printed disclosure forms required for your city? If so, do you know how to properly fill them out? With today’s multi-page sales contracts, it’s difficult for even the best sales agents to prepare these contracts – that’s why they have computers and office staff to be certain nothing is overlooked.

As a FSBO, if you think you will “save the commission,” think again. Home buyers are not dummies. When a buyer encounters a FSBO home, the buyer expects to save the sales commission! Although I am a licensed real estate broker and know how to sell properties, when I have my investment property for sale I always list it with the best agent who sells in my community. Why? Because I know he or she (a) has all the sales tools such as the MLS, (b) knows the local home sales market, (c) has networking contacts with other successful agents who represent buyers, and (d) spends full-time marketing properties like mine.

Before selecting the best listing agent, smart home sellers interview at least three (or more) successful agents who sell similar homes in their vicinity. If you have a modest home to sell, don’t waste your time interviewing local agents who specialize in luxury home sales – that’s not a good match. Instead, interview agents who have recently sold homes like yours in your neighborhood.

Even if you think you might like to risk selling FSBO, please interview at least three agents anyway. They won’t mind. The reason is experienced agents know most FSBO sellers give up after 30 to 90 days and list their homes for sale with a professional agents who has already been interviewed. Another reason to interview three or more successful agents is to learn how they operate and what they do to get homes like yours sold for top dollar.

More important, each agent interviewed should prepare a written CMA (comparative market analysis). This valuable form shows (a) sales prices of nearby comparable homes which sold within the last six months (the sales within the prior three months are the most valuable), asking prices of competitive homes now listed for sale (your competition), and the asking prices of recently expired neighborhood listings (usually they didn’t sell because they were overpriced). The CMA form also includes each agent’s professional estimate of your home’s market value.

Compare these three (or more) estimated market values for your home. But watch out for any agent who estimates an abnormally high or low sales price for your residence. If it’s very high, without justification based on recent comparable sales prices, that’s called “buying the listing.”

Even if you list your home for sale with such an agent, he or she probably won’t be able to get a buyer to pay the high asking price. Within 30 to 60 days, expect that agent to ask you for a price reduction. Unfortunately, by then your home has become known among other local agents as “that overpriced listing” and they are reluctant to show it to their prospective buyers, even after the price is reduced to its realistic market value.

Another type of agent to anticipate is one who estimates a too-low market value for your home. Some of these agents are truly out of touch with current market conditions. But others want to be conservative on the low side, hoping for a nice quick easy sale. However, because you are interviewing at least three successful agents, you won’t be fooled by an agent’s abnormally low (or high) estimated market value.

As you narrow your focus to select the best listing agent, don’t necessarily select the one who was top sales agent last year or who has won other sales honors. Instead, select a successful agent you like, with whom you get along well, and who has good references from recent home sellers. This is a business decision, much like hiring an employee with whom you will be working closely for several months.

Successful home sellers understand they are hiring an individual listing agent, not the impersonal brokerage with the well-known franchise name on the door, such as Coldwell Banker, Century 21, Prudential, GMAC, etc. In many local residential sales markets, the best sales agents work at small independent brokerages with excellent reputations.

Ten key questions to ask each agent you interview. After each interviewed agent has inspected your house or condominium, expect him or her to give you a 30-minute listing presentation. Unless you interrupt extensively, the presentation shouldn’t take longer. It usually covers why that agent should be your listing choice and that agent’s CMA explanation of what he or she can do for you.

The best agents will include in their listing presentations their answers to these 10 key questions which need to be asked if each agent didn’t already provide the answers: (1) what are the names, addresses, and phone numbers of your five most recent home sellers; (2) if I list my home with you, what price will you get for it in today’s market; (3) what is your minimum listing term; (4) how long have you been selling homes in this area; (5) do you sell homes full-time; (6) what professional courses and designations have you completed; (7) how many listings do you have now; (8) what is your written marketing plan for my home; (9) what sales commission do you suggest; and (10) do you recommend “staging” my home?

The best agents will suggest a 90-day listing. That shows they have confidence in their ability to get your house or condo sold within a reasonable time. If the agent you think is best asks for a longer term, be sure the listing includes a written unconditional cancellation clause after 90 days just in case you chose a bad agent.

As for the sales commission, 5.1% is now the national average according to Real Trends. But in a tough local “buyer’s market” with lots of listings similar to yours, it may pay to raise the sales commission to get the attention and cooperation of buyer’s agents. Although you might be able to negotiate a listing agent down to 4% or even 3% sales commission, if the buyer’s agent won’t receive at least a 3% sales commission on a co-op sale, your house or condo probably won’t be shown very much if comparable listings offer higher commissions to buyer’s agents.

EXAMPLE: In my newspaper “Real Estate Mailbag” column, we’ve had reports of successful home sellers raising their commissions to 7%, with 4% going to the buyer’s agents. Surprisingly, I recently received a letter from a nice lady in Concord, California who complained her listing agent refused to raise the commission to 7% after her house wasn’t selling. He said it was “unethical” and unfair to charge such a high sales commission! My advice to her was switch to a better listing agent when that listing expires.

Although agents you interview will be reluctant to criticize your home, be sure to ask what each agent recommends to make it more marketable and saleable. Ask if the agent recommends “staging” your home to make it appear more attractive. Staging a home means bringing in a professional “stager” or decorator to make the home look better to buyers.

Stagers often recommend, for example, removing old-fashioned furniture clutter during the listing period and renting contemporary furnishings. An excellent new book on this topic is Home Staging by Barb Schwarz, available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.

STEP 3 – HAVE YOUR HOME PROFESSIONALLY INSPECTED. After checking each agent’s references of recent home sellers and selecting the best agent for your situation, but before exposing your home to the local market, the next step is to obtain all the customary local home sale inspections, such as for termites, energy efficiency, and building code compliance. These required or customary inspections vary in each locality. Your listing agent will know which inspections are required in your area and which additional inspections the agent recommends.

Although not required, a pre-listing professional home inspection avoids surprises later. Most home buyers today insist on a professional home inspection so why not have it made before listing so you can either correct any problems discovered or disclose the inspection report to buyers if you don’t want to pay for repairs?

I suggest hiring a member of the American Society of Home Inspectors (ASHI). The cost is around $300 and takes two to three hours. Even if you have to take time off work, be sure to attend this very important inspection to discuss any defects discovered. What sounds like something serious in the inspector’s written report is often “no big deal” after discussing it with the inspector on site.

If the cost to repair the discovered defect is minor, it’s usually best to get it fixed before listing the home on the market, thus removing possible buyer objections. Local ASHI members can be found at www.ashi.com or 1-800-743-2744.

Incidentally, professional home inspections for condo units are becoming very common. The professional inspector will not only check the condo unit for any problems, but he or she will also inspect the common areas of the condo complex and probably talk with the on-site manager to inquire about any anticipated needs for major condo association expenses and special assessments. For more details about buying and selling condos, please see my special report “The 10 Key Questions Condo Sellers Hope Buyers Don’t Ask.”

Think very carefully before offering your home for sale “as is.” After you have had all the required and customary local inspections, including a professional home inspection, rather than have repairs made before putting your home on the market, you might want to offer the property for sale as an “as is” fixer-upper.

An “as is” home sale means the seller must disclose in writing to the buyer all known defects, but the seller will not pay for any repairs. An “as is” sale is not a way to conceal defects from the buyer – if you know of undisclosed defects, your buyer can and probably will sue you after the sale closes when the buyer later discovers those hidden (latent) defects. Incidentally, buyers often talk with the neighbors to learn if you, the seller, knew about undisclosed defects.

The big disadvantage of an “as is” sale is it is like waving a red flag in the buyer’s face warning “Watch out there’s probably something seriously wrong with this home.” But that is not always true.

To illustrate, if you have an older home located in a popular neighborhood where many homes are either being torn down to rebuild new, or are being extensively remodeled, selling “as is” might be very smart so you can offer a lower sales price and let the buyer make repairs or rebuild. However, please understand there is a stigma about a home offered for sale “as is” so expect to receive less than a top dollar purchase offer.

STEP 4 – SET A REALISTIC ASKING PRICE. After getting your home ready to sell, hiring the best real estate agent, and having the professional inspections completed so you know and can disclose the home’s defects, it’s finally time to set a realistic asking price.

In a local “buyer’s market,” this is not the time to set a high asking price and hope some fool will overpay for your house or condo. That rarely happens! Nor is a buyer’s market the time to set an abnormally low asking price, hoping to create a “buyer frenzy” to bid the price up – that tricky method was used in some seller’s markets a few years ago, but those days are over.

With the help of your listing agent, and those CMAs the interviewed agents gave you, it’s time to consider whether the local market for homes in your price range is rising or falling. In most local home sale markets, home sales prices have leveled off from what was attainable in 2005 and 2004. As I often say, home sales prices have their peaks and valleys with “plateaus” along the way – in many cities, house and condo prices are now on a plateau as I write this in September 2006.

If you really want to get your home sold for top dollar in a buyer’s market, don’t get greedy. Asking a few thousand dollars less than your closest competitor homes can mean your residence sells but the others don’t. Owning your home an extra month or two often costs thousands of extra dollars more than setting a realistic asking price. Here’s another asking price secret – set your asking price $1,000 or $2,000 below threshold amounts.

EXAMPLE: If your home is worth around $300,000 based on the CMAs, set the asking price at $298,000 or $299,000 rather than $300,000 or higher. The reason is buyers who tell their buyer’s agents they will pay up to $300,000 will then see your listing in the local MLS computer search or on the Internet at www.Realtor.com. But if you set the asking price at $300,000 or higher, those prospective buyers might not learn about the availability of your home.

Before leaving this important topic of correctly setting the asking price, some home sellers ask if they should hire a professional appraiser to estimate the home’s market value. I advise against wasting the $400 or so a professional appraiser will charge. The reason is appraisers work with closed sales prices. Many of those recorded sales occurred up to six months ago. But having three or more up-to-date CMAs prepared by the potential listing agents you interviewed provides a far more accurate and current picture of what is happening in the local home sales market.

STEP 5 – COUNTEROFFER ALL PURCHASE OFFERS YOU DON’T ACCEPT. Many home sellers are insulted when they receive a written purchase offer substantially below their realistic asking price. Some sellers and their listing agents won’t even make written counteroffers.

That is a major negotiation mistake in a buyer’s market where any offer should be seriously considered. Always make a written counteroffer to keep communications open with any prospective buyer who thought enough of your house or condo to write a purchase offer. Negotiations sometimes take only a few hours. But often they can take several weeks, back and forth, before determining if a sale will result or the parties are too far apart in price or terms.

Unless the home seller counteroffers every offer, even “low ball” offers, you will never know if a sale can result. More negotiation strategies are in my special report “How to Become a Super-Successful Real Estate Negotiator.”

EXAMPLE: A few weeks ago I ran into Gil, one of my favorite local real estate brokers, at the grocery store. He told me about a $1 million house listing of his where a buyer made a “low ball” purchase offer of $800,000. But rather than be insulted and lose that possible buyer, the seller counteroffered at $950,000. Even if a sale doesn’t result to that buyer, now Gil has a better idea what price the seller might accept.

However, after a firm purchase contract is negotiated and signed by the seller and buyer, the sale is just beginning! This post-offer time period can be very difficult. You and your listing agent must keep on top of the deadlines, especially to be certain the buyer follows through on obtaining the mortgage appraisal and other essentials.

Home sellers and their listing agents should be aware the buyer might be encountering the dread “buyer’s remorse disease.” For this reason, it is essential for sellers and their listing agents to keep in touch with the buyer and their buyer’s agent to be sure everything is moving on schedule toward the target home sale closing date.

During this period between the contract signing and the sales closing settlement, sellers should watch out for “non-stop negotiator buyers.” Although buyers are entitled to a “walk-through inspection” the day before or the morning of the closing settlement to be certain the home is left in the agreed condition and the seller didn’t remove any items included in the sale price (such as the dining room chandelier!), any other time the buyer is on the premises before that walk-through is very dangerous for the seller.

To illustrate, the buyer might ask to come back to the house or condo to measure the rooms for their furniture. Don’t allow it! Instead, provide the measurements over the phone or send a fax drawing of the room sizes to the buyer or buyer’s agent. Every moment the buyer is on the premises he or she will be looking for real or imagined defects to use to reopen negotiations as to the sales price or terms.

Also, never allow a buyer to move into the property before the sale is closed, recorded, and you have your money. Problems can develop when the buyer is living in the home and looking for real or imagined defects to use for renegotiating the sale price and terms. Even when the house is vacant, don’t let the buyer move in early.

Incidentally, there are insurance issues if you let the buyer occupy the house before the sale records – is the buyer a tenant or a household guest? Your homeowner’s insurance policy might not cover any loss which occurs during such occupancy.

CONCLUSION. Selling your house or condo in a “normal” buyer’s market for top dollar is vastly different than selling in the hot “seller’s market” many cities enjoyed the last few years. But home sellers and their listing agents who adapt to buyer’s market conditions can continue to be successful in attaining top dollar home sales.

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