Friday, April 3rd, 2009 at 12:13 PM
Pricing Rule-of-Thumb
Some people have said that I should write a book, and I respond – “I have!”
It’s all right here on the blog, feel free to look around, there are 700+ posts available!
But the most important one is the pricing rule-of-thumb.
A seller called yesterday and wanted to know what was wrong with her listing agents. She’s only had a couple of lookers over the last several months, and thought the agents should be doing something more/better/different.
I asked her about price, and she said that they had put in more than $200,000+ in improvements, but were only listed for $100,000 ABOVE what they paid a couple of years ago.
If you bought your house between 2004 and now, and you want to resell it, expect that buyers will only want to pay LESS than you paid, not more. With one click they’ll see your sales price and date, and not bother to hear about the deluxe sun room! So either sell for less, or don’t sell.
How much less? Here’s the formula:
1. If buyers are making offers, you price is about right – w/i 5% of what somebody will pay.
2. If buyers are coming, but no offers, you are 5% to 10% wrong on price.
3. If nobody is coming, you are at least 10% off on price.
If you have been listed for months, and your agent isn’t telling you to lower your price, then go pound your fist on their desk and demand that they lower it today at least 5%, and another 5% in two weeks. Keep doing that until buyers start writing offers, and then sign one.
There are agents that want to hold on price, thinking that somebody will eventually come along. You need to weigh the odds of the miracle sale with your need to move. If you’re not ging to give it away, your high price helps your neighbors sell their houses, so they’ll appreciate you. But this environment, don’t think that a buyer is going to come along and pay your price because you have the only house with heavy-duty nails.
Buyers don’t care about your improvements, they want those for free. They want a deal, so if you want to sell bad enough, that’s the formula!
The buyers’ expectations of what they’ll pay for your house go down by roughly $1,000 per day the house is on the market. Sellers, if you aren’t lowering your price by at least $30,000 per month, you getting left behind.
Posted on Friday, April 3rd, 2009 at 12:13 PM in Thinking of Selling? | 30 Comments » | 
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Not only do buyers want improvements for free, they want 2x for anything they deem less than perfect.
Rob Dawg | April 3rd, 2009 at 12:17 pmFYI – those “There’s Nothing Price Can’t Fix” T-shirts you gave out are a hit at open houses.
Sandyago | April 3rd, 2009 at 12:31 pm“The California Association of Realtors has launched a program to provide a flat $1,500 monthly payment for as long as six months to cover mortgage payments for first-time homebuyers who get laid off from a job. The flip side of home-buying incentives is that they can result in some people buying homes when they don’t have a strong financial grounding, according to Bruce Norris, founder of The Norris Group, a Riverside-based real estate investment firm. Incentives, such as the association program and tax breaks, could end up weakening the financial caution a person should have when buying a home, he said.”
Nathan | April 3rd, 2009 at 1:08 pm“If you bought your house between 2004 and now, and you want to resell it, expect that buyers will only want to pay LESS than you paid, not more. With one click they’ll see your sales price and date, and not bother to hear about the deluxe sun room! So either sell for less, or don’t sell.”
Brutal. Sad commentary on the market. Improving houses should be worth something in the sale price. Otherwise, we would all have concrete laid bath tile, plaster walls and metal kitchen cabinets.
Former RB Resident | April 3rd, 2009 at 1:17 pmBrutal. Sad commentary on the market. Improving houses should be worth something in the sale price.
Unless their improvements show terrible taste that turn off buyers. Or add things that buyers don’t care all that much about. Not all improvements are expected to provide much return on value. Especially since after you install it, it’s now used improvements.
JordanT | April 3rd, 2009 at 2:51 pmBrutal. Sad commentary on the market. Improving houses should be worth something in the sale price. Otherwise, we would all have concrete laid bath tile, plaster walls and metal kitchen cabinets.
—————–
What many flippers and “upgraders” don’t understand is that buyers may not have their same sense of style. Personally, we **discount** the cost of having to rip out all the “upgrades” so we can do things the way we want them — after all, isn’t that why we’re supposed to prefer buying to renting? We much prefer old homes, and sellers who’ve simply lived in their homes and raised children, rather than have to deal with sellers who think buyers should pay them a premium for their “upgrades.”
CA renter | April 3rd, 2009 at 3:06 pmAgreed.
Improve your house at your own peril, and at least keep it neutral-looking.
I think buyers ARE willing to pay a little extra for the right improvements. But not dollar-for-dollar on what it cost to put them in.
Example:
1. Great-looking resort-style pool? 50 cents on the dollar.
2. Standard pool? zero, and maybe negative value because there are so many parents who are paranoid about drownings.
We can put some of the blame on the buyers too. This is the microwave society, and buyers are frustrated and want a house without having to look too hard.
They’ve seen enough of them (I know CA renter has!) that have tried to sell for more than they paid, only to have sub-standard or goofy upgrades frustrate them more. They don’t want to give a chance to the next guy who tries it.
Jim the Realtor | April 3rd, 2009 at 3:20 pmCA Renter is right.
Every time I see “Tuscan Estate”, I cringe.
“Nothing transforms your life like mahrble columns”
http://www.hulu.com/watch/2347/saturday-night-live-mikes-marbleopolis
Ooh La La.
The worst is terrible granite countertops and bad high-end cabinets. I think to myself… shit, now I have to tear out perfectly good cabinets because they looking like garbage.
Sorry, “upgrading” is subjective. Unless you’re fixing a leaking toilet, I don’t pay much for anything.
And, not to rant, what is it with people putting in pools that cover 80-90% of their yard? I’d like to step out of my back door and not end up directly in the wading portion. I personally discount the value of a house with a pool. I’d have to tear it out to make it safe for my young children.
Chuck Ponzi
Chuck Ponzi | April 3rd, 2009 at 3:28 pmHere’s a link to the TV news spot from last night – click on the video once you get there:
http://www.sandiego6.com/news/local/story/Real-Estate-Agent-National-Internet-Figure-YouTu/ZxS9DWjVokSrYuPM6i3BOA.cspx
Jim the Realtor | April 3rd, 2009 at 3:36 pmJim The Realtor,
Question–I’ve heard a rule of thumb–a home is worth 100 to 120 its’ monthly rental value.
2000 per month rent = $200,000 to $240,000 price.
James | April 3rd, 2009 at 3:45 pmIs this a good rule of thumb? Have you heard this? What do you think?
Thanks,
James
Hey jim, how do you feel about that recent nytimes article which says big banks wont consider loans involving a mortgage broker? Have you run into problems with that?
apphacker | April 3rd, 2009 at 3:53 pm“What many flippers and “upgraders” don’t understand is that buyers may not have their same sense of style. Personally, we **discount** the cost of having to rip out all the upgrades”
So far I would estimate that about 80% of all the money I’ve ever spent on “home improvements,” in four different houses over the past 30 years, has consisted of ripping out some previous owner’s “upgrade” and putting the house back the way it was when it was first built.
GeneK | April 3rd, 2009 at 4:00 pmI’d have to tear it out to make it safe for my young children.
Chuck, your children are only at risk if they don’t learn how to swim, which puts them at great risk everywhere else — other people’s pools (where your kids will go because you don’t have one), the ocean, rivers, water parks, etc.
Otherwise, yes, improvements (such as pools) subtract from the value unless they’re exactly what the buyer would want themselves.
tj and the bear | April 3rd, 2009 at 4:21 pmHere’s somebody who appears to have listened to Jim: 2002 pricing, $265/sqft, west of I-5, 9600 sqft lot.
That’s what’s known as “The Shocker” for competing listings nearby.
If this one doesn’t sell quickly, we’ll know there’s a long way to go before the bottom in Encinitas.
W.C. Varones | April 3rd, 2009 at 4:33 pmDamn, WC, that’s a nice place. They’re doing that silly VRM thing, but they’ve already set the comp with the low range.
tj and the bear | April 3rd, 2009 at 5:07 pm“I asked her about price, and she said that they had put in more than $200,000+ in improvements, but were only listed for $100,000 ABOVE what they paid a couple of years ago.”
People are so friggin’ stupid. Sometimes, I’m surprised that the human race managed to evolve from living in caves.
greenlander | April 3rd, 2009 at 5:17 pmHome Prices: Low, But Still No Bargain
Wall Street Journal
April 1, 2009
http://online.wsj.com/article/SB123853857749575441.html
Homeowners are watching anxiously for any signs of housing market stabilization. So, too, are all those who believe the market may hold the key to the economy.
And yet the most recent data makes for more gloomy reading.
The closely watched Case-Shiller index, which tracks prices across twenty major cities, shows that through January the crash was getting worse, not better.
And yet, even after these declines, homes overall still may not be that cheap relative to wages. More on that later.
The headline numbers are grim enough. January’s Case-Shiller index showed a 19% slump from a year earlier. The usual suspects fared very badly: Phoenix was down a remarkable 35%. Las Vegas fell 32% and Miami 29%.
Nathan | April 3rd, 2009 at 5:48 pmWhat does it cost to rip out a pool properly in San Diego?
Will grass ever grow there again? I hear it has trouble, but can’t understand why.
Any recommendations for companies who do this?
Stu | April 3rd, 2009 at 6:17 pm“I asked her about price, and she said that they had put in more than $200,000+ in improvements, but were only listed for $100,000 ABOVE what they paid a couple of years ago.”
Jim, I am really curious about the whole conversation. What advice did you give the lady and what is her reaction ?
Assume you gave her the honest advice, I can not think of any nice reactions from her, if their price is so out-of-reality…
Eric Chang | April 3rd, 2009 at 7:30 pmUsually they argue, change the subject, or go numb, but regardless, they don’t want to hear it. I told her to be smart about it, and just lower your price in 5% increments until people start showing up.
She hasn’t lowered it yet, in spite of the fact that someone listed their same model for $100,000 under hers this week.
It reminds me of the guy on Coast in San Marcos who has been trying to get $800,000 for over a year. Today his next-door neighbor listed for $575,000, as a short-sale. Think he’ll lower his price now? No way, not going to give it away.
Jim the Realtor | April 3rd, 2009 at 7:53 pm“And, not to rant, what is it with people putting in pools that cover 80-90% of their yard?”
This is one of my biggest pet peeves. If I wanted to live in Venice, then I’d be living in Venice. What really kills me is when the pool five feet from the house even though the lot is 10,000sf or more.
Lisa in OC | April 3rd, 2009 at 7:54 pmHome overimprovement has been such a part of the bubble. I remember hearing so many people back in the heyday talking about how much value they were adding with each remodel or project. Ooops.
Personally, I’m sick of seeing overpriced listings full of stainless steel, travertine and Pergo. Hold the granite and the $20K built in outdoor grill with fire pit too. I’d like just a normal, well designed house at a price reflecting current market conditions.
You really should print up more of those t-shirts, Jim.
SD_suntaxed | April 3rd, 2009 at 8:23 pmChuck, that link was awesome. You made my morning.
Chrisg | April 4th, 2009 at 7:28 amTJ,
Agreed, but either my wife or I are always there with them. Call us overprotective, but in today’s cali, you need to be a hypervigilant parent or people criticize you (or worse, call child protective services).
Besides, my youngest is 2 and is just now being able to hold her breath under water. I was 5 or 6 before I did that… of course I grew up in Iowa.
And, that’s not the only reason. We belong to great clubs and most places now have community pools. Why would I need to burn up my electricity and money servicing a pool that I might use 10 times a year? Sorry, Socal is a desert, and we need to remember that water is not limitless. It’s on the same level as driving a Hummer… which I don’t for personal morality reasons. I don’t make decisions for others, but for me… I don’t want it.
Chuck
PS. That wasn’t meant to sound preachy, I just don’t want a pool in my back yard. It’s a waste of my personal resources.
Chuck Ponzi | April 4th, 2009 at 12:29 pmChuck,
I just watched the video you posted. That was hillarious!!!!
CA renter | April 4th, 2009 at 1:28 pm“People are gonna look at your house and go ‘who lives there, the pope? What is that the playboy mansion? It’s ridiculous!’ Imagine pulling up to your house and seeing these and goin’ ‘oh my god, I live here!’”
That’s classic saturday night live.
Chuck Ponzi | April 4th, 2009 at 2:10 pmOh, I hear you guys on the wrong improvements. I’ve seen plenty of them. But, my last house had an addition with paneling that was heinous. We gutted it, put up drywall better windows, a deck, etc. All pretty neutral and definitely an upgrade over stained paneling. If some potential buyer had told me that was worth negative something, I probably would have told them to beat it.
Of course, I sold before the real implosion.
Former RB Resident | April 4th, 2009 at 3:38 pmI actually drove by a house yesterday with about eight silly columns outside like in that SNL commercial. Ugly.
Geotpf | April 4th, 2009 at 4:09 pmI looked at a condo with nasty “upgrades” – doors cut out of chalkboards, purple walls, and free dog wear and tear. They upgraded their price accordingly, 15% above comps. Did I mention this unit backed into a two lane street?
If this person thinks their house is that valuable, they should buy it from themselves (i.e. keep it). In all my years of negotiating prices, I’ve noticed some people’s idea of negotiation is to add 20% to an optimistic price and hope you’ll meet them halfway.
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