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Understanding buyers’ mindset is key to successful home sale

In February, I wrote about the Mahomet real estate gap—the serious supply shortage—that exists in the $100,000 to $200,000 price range.  With compelling statistics that confirm a supply shortage, I heard from a few folks whose homes had been on the market for months in this segment without selling.  Naturally, they were curious how this can happen, so I am devoting this column to the most common causes of homes’ failure to sell and how owners can overcome them.

Timing
To some extent all residential real estate in Central Illinois has seasonal peaks and valleys; however, this is even more pronounced in school district driven communities like Mahomet, where families with kids tend to make an extra effort to move during the summer whenever possible, so as not to interrupt the school year.

The graph below shows sales activity by month in the Mahomet-Seymour School District since the beginning of 2012.  The summer months correspond to fairly sharp peaks, while Thanksgiving through February typically sees dramatically less activity.

 

Graph

Keeping in mind that buyer showings and purchase offers happen 30 to 90 days ahead of these closing stats, your odds of effecting a sale during the summer are dramatically improved by having your home on the market by March or April.  Put differently, anyone planning to close on a house purchase by July 31st signs a purchase contract no later than mid to late June, which means their house hunt occurs from spring through June—at the latest.

The later in the spring your home hits the market, the more of that seasonal rush of buyers will have made purchase decisions without having your home to consider.  If you hit the market any later than early June, you will end up in a situation where there are fewer buyers in the market with each passing week.  Even in the most popular price ranges, that can mean that demand drops off suddenly, resulting in a very quick shift to excess supply, which then commonly persists all the way through the winter into the next spring.

If you have no choice but to hit the market during the off-season, here’s a key strategy: price slightly lower than you think necessary, especially if there are any competitors priced within a few thousand dollars of your home.  If you merely match the competitors’ pricing, all it takes is for your most desperate competitor to do a price change, and suddenly that other home steals your pricing advantage.  The best way to mitigate the risk of chasing other peoples’ price reductions all the way through the off-season is to price well enough that your home snags the very next buyer in your home’s market segment.  If you accomplish that, your competitors’ price war will no longer affect you.

Price
Pricing residential real estate is much more an art than a science, since no two properties are exactly alike.  Your home is properly priced when it is priced lower than any competing properties that are objectively more desirable, while priced higher than any competing properties that are objectively less desirable.

Note the use of the word “objectively.”  Your home isn’t worth more than all others of similar size and location just because you love it more, because you put 50-year shingles on, because you thought you should treat yourself to a $700 toilet with built-in bidet, or because you used deluxe nails in the construction.  “Objectively” means that you must consider your home and its relative desirability the way a reasonable, detached buyer would.  You should know what that’s like, since anyone wearing a seller hat had to wear a buyer hat at some point in the past.

In cases where there are several properties on the market in a very narrow price band, a $5,000 difference in your list price can sometimes mean jumping in front of several other competitors as you vie for the attention of buyers.  Conversely, if your home’s nearest competitors are either far more lavish and more expensive, or vastly less desirable and less expensive, you can often get away with a higher price, particularly if you have minimal direct competition and hit the market at the right time of year.

“But can’t I just try my delusionally higher price for a little while?  We can always reduce it later, right?”

Okay, so the clients don’t actually say the word “delusionally;” I just tend to hear it that way.  This idea is spectacular, except that you squandered the most potent period of market exposure; waited for any sense of excitement or urgency among buyers to subside; and then reduced the price at a time when it was too little too late.  I see homes throughout the off-season that have languished on the market for months, which would have clearly sold for more than their current list price if they had just made their market debut at an appropriate list price, rather than a delusional one.

Condition
This variable has a major impact across all price ranges, but its impact is felt most in more modest price ranges.  Here’s why: the lower the price range, the less likely the buyer can afford to scrape together a down payment and still have sufficient cash to correct condition issues.

Condition issues impact all price ranges, though.  Regardless of financial ability, many buyers simply cannot imagine their way around dated, worn, or ugly items in homes.  That knocks out a large percentage of otherwise well suited buyers, who will simply rule the home out, so long as there is some other option.  This is part of why buyers so often reject the larger, older home in a more established neighborhood with mature landscaping in favor of a smaller home in a less established neighborhood: they’ll trade size and all sorts of other desirable attributes for what is perceived to be newer and less needy.

If you manage to get a buyer with enough imagination to get past your country blue carpet, your Lucite chandelier, and the wallpaper that 1992 desperately wants back, those buyers will assume that de-uglying your home will cost twice as much as it actually will.  Thus $5,000 in updates that you fail to do in preparation for putting your home on the market can often knock your sales price down by $10,000 or $15,000.  A time capsule is a great idea in the base of the Alma Mater statue, not so much in your living room.

Need more motivation?  Consider that you might earn $100 per hour doing well chosen improvements to your home when you divide the added sales price by the number of hours invested in the improvements.  Even better, this added financial benefit is typically tax free, since the sales of most principal residences are not subject to capital gains tax.  So if you’ve got some skills, consider taking time off work if necessary to get your home into the best possible condition for its market debut.

So what if you have a house with an old roof and no cash on hand to replace it before the house hits the market?  This is a huge issue, since many buyers—no matter how much they love your home—cannot afford to buy a house that will demand a $7,500 new roof in a year or two.

Find a way—including borrowing the money until closing—to get it done before the house hits the market.  Alternatively, if there is no possible way to get the roof done when the house hits the market, get a firm bid on replacement and market the house with a new roof included.  Once you have a buyer, include the new roof in a repair amendment.  You would then have the roof installation done immediately prior to closing (after getting past any inspection or financing contingencies), and pay the roofing invoice at the closing at the moment you are cashing out of the house.

What about marketing?

The best marketing in the world won’t maximize your net proceeds as a seller if you disregard the three variables above.  Great marketing can get the word out more effectively, generate more excitement and urgency among buyers, and can result in a higher sales price only when sellers pull the appropriate levers for timing, price, and condition variables.

 

difanisMatt is a partner with RE/MAX Realty Associates, the area’s market leading firm with offices in Champaign, Mahomet, and Monticello.  Matt is a longtime resident of Mahomet.  He was the 2012 President of the Champaign County Association of REALTORS® and was the Association’s 2013 REALTOR® of the Year.  He is a graduate of the University of Illinois College of Law, but he regained his senses without ever seeking to obtain a law license.
All statistics are from the Champaign County Association of REALTORS®, and are deemed reliable, but are not guaranteed.

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