One thing that home sellers really want to know right now is how they can sell a home without giving it away … in a market loaded with distressed properties for sale.
I mean, if the Jones family down the street is going to give their home away, how are you going to entice a buyer to purchase your home at its fair market value?
Well, you can sell your home, even if some of your neighbors are giving theirs away, but you need to know a few things first.
For example, take a look at the real estate graph on the right. This is a picture of your competition. If you have a home for sale in Tallahassee that is worth less than $75,000, you must understand that 2/3rds of the properties that you are competing against are owned by people or organizations that will sell them at any cost.
Contrast that with homes valued over $750,000, where only 1 in 13 are short sales, foreclosures, or bank owned (REO) properties.
Sizing up your competition is the first part of getting your home sold in today’s difficult housing market, and too often sellers ignore this critical task.
Today we’ll examine a Northeast Tallahassee home seller who has a home worth between $250,000 and $300,000, and determine what this seller needs to do to sell a home at its highest market value.
Case Study – How To Prepare To Sell Your Home
In order to sell a home in today’s highly competitive market, you need to do more than a normal CMA (Comparative Market Analysis). You must conduct an in-depth study of supply and demand which includes a break-down between distressed properties, and properties that are being sold “arms length.”
Additionally, you should focus your valuation to homes that are very similar in nature to the one that you want to sell, trying to maintain high similarity profiles for key buyer objectives (school zones, number of bedrooms, amenities, etc.). For the purpose of keeping this post relatively brief, we will look at the entire market. Just note that a real competitive analysis would focus more tightly on similar properties in your area.
Step 1: Identify And Quantify The Competition
When we look at the inventory of homes for sale in Tallahassee, we can see that our case-study home seller will be competing with 144 homes in Leon County in the same price range. More importantly, there are 124 of these properties located in the Northeast which the seller must consider his closest and most real competition.
Using both the table on the left, as well as the graph above, we can determine that there are most likely 29 distressed homes for sale in his price range in the Northeast (24% are distressed), and five more located around Tallahassee for a total of 34 distressed homes for sale between $250,000 and $300,000 in Tallahassee.
So the Northeast Tallahassee competition looks like this: 74 arms-length home sellers, and 23 distressed home sellers.
Knowing the competition is very important, and now we know exactly what “we’re up against” when it comes time to sell this home. But we also have to know what the current demand is going to be, and it is the second important step in determining how to sell a home in a market where neighbors are giving their home away.
Step 2: Estimate The Current Demand For Similar Homes
When we look at the table on the right, we can see that 14 sales of homes valued between $250,000 and $300,000 have occurred each month (on average), and that 10 of these were located in Northeast Tallahassee.
One way to interpret this data would be to say that while 97 homes are on the market in Northeast Tallahassee (priced between $250,000 and $300,000), only 10 are going to sell. Common sense would have us believe that the ten best values are the most likely to sell in the next 30 days.
But we have not accounted for distressed properties, and their impact on the market.
Step 3: Estimate Specific Demand For Your Home
What most home sellers do not realize is that if they are selling a home (not in distress), then they have something that many distressed properties cannot deliver. And that is flexibility on closing dates, inspections, and repairs. Consider this as an “ease of purchase” package.
One half of the distressed properties are short sales, so homebuyers who need to be in by a date certain really cannot attempt a short sale purchase. Additionally, many buyers do not have the knowledge or capability for financing repairs into their purchase, so many of the distressed properties will be beyond their reach.
It is this group of buyers, who either do not have the time or the resources to purchase a distressed property to whom we want to market the home. So, let’s take on final look at some numbers in a graph:
This graph of distressed home sales shows that roughly 1/3rd of the home sales in the past year were distressed properties. Knowing this, we can estimate that 1/3rd of todays buyers (current demand) has the time and resources to pursue REOs, foreclosures, and short sales, so we can thus deduce that 2/3rds will be buying an arms length sale.
That means we should expect about 6 to 7 arms length home sales, and 3 to 4 distressed home sales each month in Northeast Tallahassee, for homes priced between $250,000 and $300,000.
Combining all of our assembled information yields the following:
- Number of Arms Length Homes On The Market: 74
- Number of Arms Length Buyers In The Market 6.7
- Months of Supply Of Competition: 11.1
This means that if nobody with a $250,000 to $300,000 home enters the market for the next 11 months, we have ample supply for the current number of buyers. Additionally, this means that serious sellers need to be priced among the 7 best values for all arms-length sellers to have a good chance of selling each month.
We know from yesterday’s weekly special report that home values continue to decline, so home sellers need to evaluate their position frequently, and adjust their asking prices accordingly.
Sell A Home Without Giving It Away
Today’s blog post covered how to determine your highest value by only comparing it to the highest valued segment of the homebuying and selling market. This exercise hopefully gives you an idea of what you should expect your real estate agent to do when giving you a value range for your home. But what we did not cover is equally important!
Once you know the best value range for your home, you absolutely must use targeted marketing to expose it to the ready buyers in the market. Yesterday’s blog post went into great detail about how to best market and advertise a home for sale. If you combine today’s article with yesterday’s post, you can sell a home without giving it away.
If you want to sell your home at its highest value in today’s real estate market, just drop me a note (<- by clicking this link) to schedule a time to evaluate your specific situation and goals. I promise to be thorough and ensure that you understand everything that you need to know to sell your home without giving it away!