I have recently had the pleasure to meet with several potential sellers. And I am noticing a trend. The word is finally getting out that now is the time to sell. This is very true. The market is HOT!
However, even in a hot market a home is only worth what a seller is willing to sell it for and what a buyer is willing to pay for it. Pretty simple equation, right? Not always. In a hot market, we find that sellers want to push for the highest value possible. And we are right there with them — to a certain point, that is. You see, sellers hire me to sell their home, not just to advertise it. There comes a point where even a hot market will not accept a home that is overpriced.
I thought it would be healthy to discuss a few things that don’t affect the fair market value of your home.
1. Functionally required updates: Although replacing an existing roof with a new one certainly makes a home more marketable, it does not have much of an affect, if any, on the market value of a home. Similarly, replacing the furnace and air conditioning, hot water heater, dishwasher, or even stabilizing a shifting foundation, although important, do not change the perceived value of a home. Buyers expect these things to be in good working order. They see these improvements as just part of owning a home. In their eyes, you have done your job by replacing these items, not gone above and beyond. Unfortunately, the aforementioned improvements/repairs can be some of the most expensive to address.
2. Historical appraised value: If at one point you refinanced your mortgage to capitalize on better interest rates or to access some of your equity, and your home appraised for X, that is a snapshot in time and has very little bearing on today’s market value. Even if the appraisal was just done six months ago, please keep in mind that the lender offering you the home equity line of credit (HELOC) wants to keep your business. Although I have been told by appraisers that a refinance appraisal and a purchase appraisal are exactly the same, I don’t believe it. I have met with so many sellers who are upside down on their mortgage simply because a lender over-appraised their home and allowed them access to more equity than currently existed in their home. If you perhaps ordered an independent appraisal of your home, please keep in mind that the appraiser was being paid by you, the homeowner, and in my experience these appraisals can be inflated.
3. What your neighbor’s home sold for: In our market, especially when it comes to resale, each and every home is different and has its own nuances. Although you might think that the neighbor’s house down the street was just like yours, I would bet that there are some differences. And even if they were very similar, when did your neighbor sell his home? What was their situation? What was their buyer’s situation? And most importantly, how did you come to find out what the home sold for? Often what a neighbor said they sold for and what they actually sold for are different. Neighbors leave out closing costs paid for the buyer, major repairs, and sometimes they just leave out the real sales price. It’s a pride thing.
4. What you paid for the house, what you owe on the house, what you need to sell it for: These are all pretty self explanatory. And I will use the stock market example again. Just like a stock on Wall Street, none of these factors have any bearing on a stock’s value. Can you imagine if an investor went to Wall Street and demanded a price based on what they paid for the stock, or what they need from the stock? They would be laughed off of Wall Street. The same applies to the real estate market. Once you decide to sell your home, it is no longer about what you need or desire from the sale, it is about what the market will support.
5. How much you have put into it: Please keep in mind that there is no single home improvement project that will return 100 percent of the investment cost. According to the 2015 Cost vs. Value report, the highest return on investment from a home improvement project was 70.9 percent and it was for fiber cement siding replacement. They estimated the cost of that project at almost $15,000. It is an unfair expectation to recapture all of your investment in home improvement. It placed unrealistic pressure on a homeowner and can take the fun out of selling. Don’t do that to yourself.
If there is one thing I would ask you to take from this column, it is this: no more than 30 percent of the buyers out there are willing to pay even 3-5 percent over fair market value for a home. Even in a hot market. Therefore, by overpricing your home you have eliminated 70 percent of the buyer pool. Yet in a hot market, when a home is priced fairly and is in good condition, it can often receive multiple offers bidding the price up 3-5 percent. You see, it is all about perceived value. Starting at a fair price is the key.