Several years ago, at the start of this particular housing boom, a few Chicago-based real estate agents would marvel at how some sellers would hire them but only if they added $100,000 to the suggested list price of the home.
“It was like pie-in-the-sky pricing,” recalled one agent. “The only problem is, the house sold for that higher price within a couple of days.”
Do home sellers really know better than a seasoned agent how much homes are worth?
Not really, but every seller has a built-in greed factor that seems to kick in just before the listing agreement is signed. Or before.
When you’re thinking about selling your home, it’s easy to start calculating how much you’ll get at closing. Mentally, you take what you think is a reasonable list price and start subtracting costs of sale: agent’s commission, transfer fees, title, survey, etc.
You come up with a number that sounds pretty good. After all, if you’ve lived in your house for at least five years in most places around the country, your home value would have skyrocketed. It always sounds like a lot of money.
Until you hear what your neighbor got down the street. And that’s where the greed factor gets kicked up a notch.
While many of us are shocked and disgusted when we read news stories about big company officials enriching themselves at the expense of employees and shareholders, we secretly (or openly) cheer when our neighbors get tens of thousands of dollars more for their homes than expected.
While most of us can’t imagine pulling down a $230 million payday, we can imagine selling our home and pocketing the proceeds. We can relate to our fellow homeowners, and can easily visualize being in their shoes.
Which is fine – until we decide that if Mr. Jones got $480,000 for his house, we should try for $500,000 or $520,000. On the flip side, people who never quibble about who ordered what when dining out with friends, suddenly become price-conscious when it comes time to list their property.
They calculate over and over again how much cash they’ll pocket from the sale of their home after expenses. They negotiate for every nickel and take a hard line on repairing or replacing items called to their attention in the home inspector’s report. They’re so focused on the bottom line, and how much they’re walking away with that the transaction becomes difficult for everyone involved.
For example, there are deals that die because the seller won’t be flexible on the closing date. There are other deals that die because the seller won’t do a minor repair or give a $200 credit because of the “principal” involved. There are sellers who dig their heels in the sand simply because they were taken advantage of when they bought the home and feel it’s now their turn to get even.
It’s a slippery slope. A new agent recently wrote to me about her first client, an elderly woman who owned a fixer-upper. The woman wanted $345,000 from the sale of the house, but the best offers she had received were around $280,000, from developers willing to do the work.
The agent wanted to know what she was doing wrong. “Nothing, I told her, except you’re letting your seller’s expectation of cash received drive the deal. The marketplace has told you what the property is really worth. Now, you have to break the bad news to your client.”
How do you quell any feelings of greed you may have? One way is to take emotion out of your home sale. Sit down with your spouse or partner (or yourself, if you are the only owner of your property) and discuss what is the least amount of money you’d be happy getting for your home. This has nothing to do with the list price, but everything to do with the net amount you’d receive.
For example, let’s say your home is listed for $225,000 but you know you’d be happy selling for $189,000. By knowing your minimum acceptable sales price, it gives you a way to keep a lid on any greedy feelings you may have. How? Because if a first offer comes in around or above $189,000, you know you’ll hit or exceed your minimum sales price. Anything above that number is gravy.
While it’s true that this is a little mind game you play with yourself, it really works because you’re removing the element of gambling from the equation. There’s no wondering how much higher someone will go, and no game to play, because you already know you’ll be happy with whatever you get.
And in the long run, except in very special cases, an extra $500 or $1,000 isn’t going to make that big a difference in your life. It may grease a few extra wheels, but it doesn’t matter that much. What does matter is you were able to control the greed factor, which should enable you to sell your home faster and with fewer problems.
Sept. 19, 2005.