This week’s Q&A column is sponsored and written by Kim Peele and Hope Peele of The Peele Group and McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact The Peele Group at 703-244-5852 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: I found a home that I really love, and the list price looks low for this market.
Is it too good to be true?
Answer: Well, the short answer is, probably yes! And the long answer is also yes, but here’s why — and how you can get that home. It’s definitely worth understanding the “whys” of pricing strategy if you plan to buy or sell a home in 2021.
As a buyer, you are probably wondering, “Why don’t sellers just advertise the price they want?”
It’s really difficult to look at the big sticker price of a home and wrap your head around paying more. Most of us are taught to shop around and then bargain for a better price, and in past real estate markets, that worked. In today’s market it could work — but most likely only on homes that are very overpriced in the first place, need a lot of work or have been for sale for a long time.
As a seller, you may be thinking, “Homes are selling quickly right now, so why don’t I just go right to the high-end, or even above, the price that I hope to get for my home?” While you may still get a buyer, the price-it-high strategy usually results in fewer buyers looking at the home, lower-priced offers (if any) and less favorable terms for the seller.
In any negotiation, it is important to consider the other’s perspective. Most buyers are looking for value, and most sellers are looking for the best return on their investment. How do they both win in 2021? Sellers need to present their home to the market in a way that appeals to buyers and at a price that gives buyers some hope for competing and winning the home. Buyers must always know that there will likely be competition. If the home is worth it for them to enter the fray, then they should submit an offer that gets the seller’s attention.
In a market like the one we are in now, sellers are expecting multiple offers. Many have seen their neighbors’ homes sell quickly and for more than the list price. It’s even possible that this was their motivation for selling. Perhaps they were planning to sell in a year or two, but with the great interest rates and low inventory, some sellers are moving up their plans to sell.
When the seller meets with a Realtor, they are getting professional advice on how to price their homes so they can get the highest return possible. A good real estate professional will create a Comparative Market Analysis, or CMA, that details recent sales of similar homes close by. They will compare the size, features and updates of the home to others that have sold. This will help them set an approximate value range for the lowest and the highest that they could hope for.
However, it is important to note that the value they arrive upon does not always directly translate to list price. Experienced Realtors educate their sellers to know that if they price their home is listed a little low, more buyers will come to see the value of the home and make offers. Multiple offers usually result in a higher sales price and better terms for the sellers. So, it’s in the seller’s best interest to price the home at the low end of the value range to get the most interest in their home.
Buyers should educate themselves on pricing strategies as well. They should have some insight into what the minimum and the maximum price a seller could expect and how high the offers could possibly go. Their Realtor will also do a CMA on the home, determine the likely price range and come up with a winning strategy.
Especially now, it would never be a good idea to offer lower than list price on a brand new listing and risk insulting the seller, who has worked hard to get their home ready. In this competitive market, if a home is priced right, it will sell and probably for more than the list price. So, if you want the home: Offer early, offer higher and give the seller some incentive to choose your offer.
Have you ever wondered why some homes stay on market for several weeks — or even months — in this market? A Realtor’s CMA will also show the important patterns that both sellers and buyers should be aware of. It will show the average percentage difference between list price and sales price, as well as how many days each home was on the market. There is typically a trend between the number of days on market (DOM) and price. In most cases, if the DOM is low, the home will definitely sell for the list price or better.
However, you will begin to notice that the higher the number of DOM. the more likely it is for a home to actually sell for a lower price than it was listed for. The extra time on the market makes many buyers think that there may be something wrong with the home. In most cases, it is simply overpriced. Notice that I said overpriced — not priced overvalue. If the seller sets a lower than value price, it is perceived as a reasonable price, and buyers tend to bid up to the actual value. If it’s priced too high, buyers tend to “wait and see.” Then the days on market add up, the price may eventually be lowered, and many buyers have moved on.
You may be wondering, are we in a housing bubble? Does it even make sense to buy in this market?
According to Marisa Kashino, in a Washingtonian article published on March 29: “The answer appears to be no. Unlike the overheated market of the Bush era — fueled by reckless lending practices and rampant speculation — today’s buyers must endure rigorous vetting to secure a mortgage.” Combined with a housing shortage with no end in sight and fantastic interest rates, real estate in the D.C. metro area remains a sound investment.
So, how do you win a home in this competitive market? When buyers are making an offer, it can sometimes feel like it’s them against the sellers. This mindset can actually work against you, though. The truth is, when there are multiple offers, it’s you against the other buyers. There’s an old joke that if you’re running from a bear, you don’t have to be faster than the bear — you just have to be faster than the other guy! It’s a rough metaphor, but bear with me (pun intended). Many buyers are so busy thinking about how to outsmart the bear, and another buyer swoops in and out-runs all of the other buyers. Your offer is only as good as where the other offers fall short. Consider getting a pre-offer inspection, asking your lender for an appraisal waiver, and making sure you are fully approved and can even waive a financing contingency. Putting your best foot forward is inevitably the best strategy to get the home you want. You will likely only have one chance.
Meet with an experienced Realtor well in advance. Plan out your options for a strong offer, and how you may want to adjust the strategy based on the price, the condition and location of the home. For a personalized buyer or seller strategy meeting, reach out to Hope and Kim Peele at 703-244-5852.
Kim Peele is a licensed real estate agent with McEnearney Associates, Inc., lives in Old Town and works in Virginia, D.C. and Maryland. She and her daughter Hope Peele are The Peele Group. Kim is a second-generation Realtor and fourth-generation Washingtonian and is dedicated to helping owners through the challenges of selling their home.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria