I have yet to meet with a seller who thinks their house is worth more than it is. In a market that has been going up 20 per cent year on year with buyers outnumbering sellers ten fold, it is easy for sellers to assume that whatever price they put their house on the market for it will sell. As we see the Fed put up rates by 0.75%, it is reasonably safe to assume that mortgage rates will likely increase again (although there is not a direct correlation), creating more uncertainty for buyers and a narrowing of the window for sellers to cash in recent price gains.
Strange though it may seem but realtors also buy and sell their own real estate. I am like any buyer or seller when it comes to realestate, trying to make sure I am on the right side of the market. I recently sold my London home and this month I sold a property in Alexander Valley that my wife and I purchased six years ago with the intention of knocking it down and building our dream home overlooking the vineyards of Alexander Valley. As anyone who knows Nancy and I, we have had lots of plans during our nearly 30 years of marriage but they always seem to change! (at one point we planned to retire to a house we owned in Devon in South West England, but then we moved to California so that didn’t work out too well!).
Given I spend my life talking to people about selling their homes and the best approach, I thought I would share how I went about the process for selling my house. I should say that we never lived in this house so it is a lot easier to take a pragmatic approach compared to selling a home where you are emotionally vested. That being said, the more you can take emotions out of selling your home the better.
Do All The Inspections Up Front
I say this to every single seller, but in a market where people are making offers before a home even goes onto the market, it is more important than ever. The biggest leverage a buyer has is when they do their own inspections once they are in contract and then use those inspections to start re-negotiating on price. As a seller, it is hard to push back if the buyer brings something to your attention that you didn’t know. At least if you have done your own inspections up front you have the opportunity to accept an offer where the buyer acknowledges the offer is based on all the information (warts and all) that are uncovered during the inspection process.
The property I was selling was a rural property so I arranged to do a home, pest, well and septic inspection. I had all the
inspections lined up so that I was in a position to provide them to buyers once the property went on the market. I know I sometimes get push back from sellers citing the upfront costs. However, the cost to do all these inspections is a maximum of $2000. I guarantee that if any buyer is going to be negotiating a credit or price reduction based on their own inspections, it will be for more than $2000!
Listen To Your Agent, Not Zillow, On Pricing
Almost every time I ask a seller how much they think their house is worth, the response will be Zillow’s Zestimate says the house is worth X. Sometimes the Zestimate is correct but sometimes it is way over or under. I wouldn’t pretend to know how the algorithm works in any level of detail but at its most basic level, it analyzes houses that have sold in the area, calculates the $ per sq ft and maybe (or maybe not) it takes into account the size of the yard and come basic ammenities such as garage or pool. Given this is how the algorithm works, it makes sense that the Zestimate is really good when predicted prices for identical condos in an apartment block or cookie cutter houses in an urban subdivision.
At the other end of the spectrum are more rural homes where there is considerable value attributed to the land. If there is a 1400 sq ft home on 20 acres covered in a forest with no views compared to an identical home on 20 acres planted with premium vineyard, the Zestimate would likely be the same. I know which one I would rather have.
If I took off my agent hat and my understanding of the nuances of pricing and put a value on my house based on the Zestimate, I would have put it on the market for $1.625m. The challenge with valuing my home was that a lot of the nearby comps are large acreage vineyard properties which artificially inflates the $ per sq ft price. For example, one of the adjacent properties, is a 6 bed home on 21 acres which is currently on the market for $6.8m. A neighboring property, which had a bigger home and was four acres versus just over two, was put on the market in August 2020 for $1.6m (which is probably close to what Zillow said at the time) but it didn’t sell until February of this year, for $1.25m, after multiple price reductions and a change of agent. After consulting with a couple of other agents, which I always like to do regardless of whether it is my home or not, I put it on the market for $1.195m, a 27% discount on the Zestimate.
In my case the Zestimate worked in my favor as it makes the home look cheap but it can have the opposite effect. I am working on a listing at the moment when the Zestimate is probably $600k less than the home is worth. Before it goes on the market it is always worth reaching out to Zillow and let them know the Zestimate is way off. I have had clients who have managed to get it changed.
Staging Is Always Worth It (Almost!)
In many ways it is easier to sell a house that is totally empty because a stager has a blank canvas. When a house is lived in, it can sometimes look to cluttered. That being said, I understand the practicalities of selling a home are different from living in a home. At the very least, I am a big fan of taking out furniture and certain possessions to help create space and make a place feel bigger and potentially working with a stager to supplement the owners possessions to bring some sizzle to the property.
Like inspections, staging is an upfront cost so it seems lot to pay before you get the proceeds from the house but there are studies that show staging a house well will get the seller an additional 5-10% on the purchase price.
The costs of staging vary hugely depending on the size of the home. The home I just put on the market was a small 3 bed, 2 bath home and that cost $3150 to stage for the first month and then $950 per month thereafter. Even if you get an offer very quickly, I would always recommend keeping a home staged until all contingencies have been removed. Deals do fall apart from lots of different reasons, so it is always best to err on the side of caution.
With my home, I actually got an offer before it came onto the market the day before it was due to be staged. Even though I had a non-contingent offer, I went ahead with staging because until the deposit is down, it is too easy for a buyer to change their mind with no consequences to them. The worst thing for the seller in that situation is to have the property ready to go on the MLS and then have to re-book staging.
Maximize Any Potential Views
It’s true - views sell. I know the first thing I do when I view a property is to head outside to check out the feel of the property and its view or outdoor space so it always makes me smile when clients head straight for the back deck or yard. For this reason, I am slightly obsessive about making improvements if there are any good views or simple ways to improve the rear landscaping. A lot of people buy homes in wine country to spend time outside, so we need to make the most of it
On my property, one of the reasons we purchased the property was to knock it down and build our dream home (see a separate blog post on our plans to build and thing things I learnt by going through that process). It was the vineyard and mountain views that did it for us. The picture above is taken from where the lounge seating area would be if we had gone ahead with our plans. Staging the outside so that they are drawn to the places you want them to focus on is another nuance in the art of presenting a property.
Get The Pricing Strategy Right For The House
There are so many different ways to try to get the maximum price for a seller, but it is so important to take into account the specifics of the individual property and most importantly the overall market conditions. In a fast rising market, like the one we have had for the last couple of years, many properties were priced low with an offer deadline to drive multiple offers and so use the competitive bidding situation to drive the best price and terms.
Over the past few weeks we have seen a number of properties pursuing the same strategy and it just hasn’t worked. Offer deadlines have come
and gone and then sellers have had to reduce their price. Buyers have got weary of multiple offers and bidding wars particularly with interest rates on the rise and as concerns about what is around the corner. Similarly, as the market takes a reality check, we are starting to see a lot of price reductions as sellers have priced homes based on a home in the neighborhood that got multiple offers which pushed the price beyond what is reasonable for a similar home.
For my home, I was realistic. It needed a very specific buyer. It was not the sort of home that would appeal to a wide buyer pool. For that reason, it make no sense to price it low with the hope of getting. Multiple offers. It was also important to make sure I gave myself some room to manoeuvre on price because there were quite a lot of issues that came up in various reports. Even though I did the reports up front highlighting thousands of dollars of work, there were inevitably other improvements the buyer would want to do.
De-risk The Offer For The Seller
It is easy for buyer and sellers to automatically jump to the highest offer or to focus any counter offers on the price. Don’t get me wrong it is the sellers net that is the all important number. However, in my situation, contingencies were a key piece of the offer package. I knew that if I accepted an offer with a physical contingency there would likely be some sort of price negotiation during the escrow period which is why I evaluated any offers based on the combination of price and contingencies. I would happily have taken an offer for $30k less if it had no contingencies versus a higher offer with contingencies.
So What Happened?
As I do with all my listings, I pre-marketed it through my newsletter (you can sign up here), through marketing emails to agents and
promoted it through various private forums of agents before I put it on the MLS. A week before I was going to post it live across all the different
consumer portals such as Redfin, Zillow etc, I put it on the MLS as Coming Soon (this is a category that means only agents on the MLS see it) and started previewing it with agents and their clients. On the Sunday before it was due to go live on the Wednesday, I got a call from an agent who had showed it to a client who really liked it. I made it clear that if I was to accept an offer before putting it on the market they would have to pay a premium and also have no contingencies so I knew it was rock solid. The agent then bought me an awesome offer which was $50k over asking with no contingencies and a 7 day close. I got my money one week later!
What Are The Key Takeaways For Sellers?
1. Work with an agent who really dives into the data as part of a pricing strategy
2. Don’t let an algorithm, where it is from Zillow, Redfin etc, drive the price. It will likely lose you money
3. Make sure you do all your inspections up front
4. As the market turns, don’t listen to an agent who says you have to put it on the market. (That was true in a strong sellers, it no longer is!)
5. You can get a buyer to pay a premium price through the scarcity of an off market opportunity
6. Just because you get an offer really quickly, doesn’t mean it isn’t a good one
7. Don’t just look at the dollar amount. Strong contingencies translate into hard cash
8. Maximize your seller net by investing in staging the inside and the outside
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