Brooklyn Real Estate Pricing Theory 101
Selling real estate is not the same as selling milk! As is the case with most things in life, figuring out a fair price for the item is relatively easy. A gallon of milk is a gallon of milk no matter where you go and of course we all know that here in Brooklyn the going rate is about $3.00.
If I said I would give you a dollar if you gave me eighty-five cents, would you do it? Of course you would! Now what if I told you I would give you a dollar for $1.05, would you do it? Of course NOT! Well, when a homeowner tries to sell their property for more than it is worth, that is basically what they are trying to do.
You see, when it comes to real estate, just like a dollar bill, a house is simply worth what it is worth. The only thing that makes real estate different when it comes to pricing is that a) beauty is in the eyes of the beholder so the opinion of value can differ from person to person and b) buyers and seller's motivations may differ causing them to buy or not buy. The same could be said for sellers. In the end, if either the buyer or the sellers are not being realistic, chances are they will not make a deal.
Being that property values are so subjective, how can we figure out exactly how much a home is worth? The answer is that we cannot. However, when looking at the facts, we can make certain assumptions and conclusions and at least get a good ball park estimate. Now I am sure you will all agree that here in Brooklyn, you have many neighborhoods and/or blocks where the homes are relatively cookie cutter. Don't get me wrong, houses are like babies, no two are exactly a like, but some are very, very, very similar! If you look at a block where all the homes are attached brick one family houses with three bedrooms, etc...they were almost exactly the same, right? The only thing that varies is condition. The point I am driving at it this, if I see that 8 of those homes on that imaginary block sold in the past year or so, and let's say the sale prices were $400,000, $405,000, $500,000, $450,000, $460,000, $475,000, $425,000 and $465,000, it is safe to assume that the average sale prices of these types of similar homes would be $447,500. So a good way to calculate values on these types of homes would be to simply look at the condition of the home itself and figure out where it falls on the "condition" scale. Is it poor, average, excellent or totally renovated. I would dare to say that the home in average condition would be worth about $450,000, the house in poor condition may be worth $400,000 and the house that is totally renovated may be worth $500,000 (or maybe $520, 000 if it is really nice!).
So...if you are a buyer trying to purchase one of these imaginary homes and think your going to be able to purchase one for say $300,000, it ain't going to happen! Alternatively, if you are a homeowner trying to sell one of these imaginary homes and you want to sell it for $750,000, it ain't going to happen. Both buyers and seller have to look at and be willing to face reality in order to accomplish their goals.
I want to point out that on some blocks the homes may not be so "cookie cutter" and as a matter of fact, some neighborhoods have a very diverse set of different types of homes which could make determining value a little harder. In the end you simply have to review all the homes that have sold as of late, the other homes actively listed for sale right now, the condition and exact location of the home being sold along with current market conditions to figure out the property's potential value. Some are easier than others, but I will tell you one thing...the BUYERS know! Most buyers look at tons of homes before they buy and they know what is out there & at what price! Plus it is very easy for them to do research and find factual sale information online.
Most buyers who start looking for homes these days will quickly realize that 9 out of 10 homes that are actively for sale, here in Brooklyn are overpriced! Hence, when a buyer sees a home that is priced "right" they get emotional and act on it, and they will probably buy it!
All of this is what led me to write this entry on my Brooklyn real estate blog. The goal here is to give consumers thinking about selling their homes advice on how to price their property so as to achieve their needs. Here are the main thoughts I want to get across that you as a homeowner should keep in mind when setting your asking price in today's market (from January 2010 through July 2010):
- Have a professional licensed real estate agent meet with you at your home and give you an opinion of your homes value. You may even want to have several agents do this. Agents do not charge for this service and typically refer to it as a Comparative Market Analysis (CMA). The agents will usually bring you over comparable sale information and expound on why they feel your home is worth the numbers they express to you.
- Always try to ask the lowest price possible and plan to be firm!! There is a psychological game that buyers and seller play, its human nature. The seller is willing to accept $500,000 for their home; however they feel they have to ask $550,000 because the buyer will always try to "chew me down." On the same token, when the buyers view this home, they feel it is worth $500,000, but given that the seller is asking $550,000, they feel a need to offer only $450,000 in order the "get the seller to come down to reality." When the $450,000 is presented to the seller, guess what ... nothing happens. Why? Well, the seller feels the "house has only been on the market for 2 weeks and I can wait!" Then the seller does not give a counter offer feeling that the buyers are "just not realistic." When the buyers do not get a counter offer, they refuse to raise their offer because they do not want to negotiate "against themselves!" So as I said nothing happens. Ultimately the house will sell the $500,000 it is worth but only after lots of misery, if they are lucky. Once a house sits on the market for a long time it gets stale and stigmatized and the way the market has been performing as of late, they may be forced to accept an offer of $480,000 out of desperation. As a seller your best bet is to ask the lowest price possible which will create an environment of excitement for the buyers and they will see the value and want to buy your home as opposed to all the others on the market which are not good deals
- Always throw a “9” into the price, ask $599,000 as opposed to $600,000, need I say anything more on this? It is also good to make the asking price a little unusual (i.e. $194,500). It gives the appearance that you have given much thought to your asking price. Hopefully the buyers will give it just as much thought! :)
- Look at other homes that are for sale right now that are comparable to yours and price yours below all the rest! This will make your home look like a bargain.
- Don’t worry about setting your price too low! If your price is below market, all the REAL buyers will see that it is a great deal and you will wind up getting several full price offers. Once that happens you will be in a strong negotiating position where you can then impart unto all the buyers the following “We now have several offers at or above the full price, hence the old asking price is merely a guideline as the home will be selling for above that price. If you want this house you need to give your highest and best offer my midnight tomorrow and the house will be sold to the highest bidder.” Buyers will be so emotionally involved at this point that they would offer more than they would have if the house was priced higher like every other property on the market that is just sitting there.
- Some homeowners think that you cannot raise the asking price, this is simply not true. You can raise the price but the only time you would want to do that would be if you had several full price offers. The bottom line is that if you are not getting good offers based on the price you are asking, raising the price will only cause your property not to be shown. Also, if you’re not getting offer or if you’re not getting good offers, it is an indication that your price is to high. This is scary because in most cases it would mean that you are at least 10% too high and if the numbers don’t work it may be a better idea not to sell the house right now.
- If you have a real estate agent helping you sell your home (which in my opinion you always should!), never enter into any conversation regarding price with a buyer, other agent or anyone else for that matter. Always instruct the person who ask you anything about your price to “please speak to my agent regarding any questions you have about the price.” If they have a question about your home, answer it honestly, but price questions should only be handled by your agent!
If you have any comments or questions regarding this article, please submit them to this blog or call me as I would love your feedback.
Mitchell S. Feldman
Associate Broker/ Director of Sales
Madison Estates & Properties, Inc.
Office: (718) 645-1665 Cell: (917) 805-0783
Web Site: www.MitchellFeldman.com
© Copyright by Mitchell Feldman. All Rights Reserved. Republication or redistribution of this material is expressly prohibited without prior written consent by Mitchell Feldman. This information is deemed reliable but not 100% guaranteed. Mitchell Feldman is not at attorney and therefore not able to give legal advice. If you are involved in a real estate transaction and have a question, besides speaking to Mitchell, you should also speak to your attorney.