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Editor's note: This article appears in Kiplinger's special issue Success With Your Money.
The balance of power has finally swung in the real estate market, with more parity between supply and demand, sellers and buyers. Nationwide, the National Association of Realtors has forecast that prices for existing homes will rise 5% in 2006. That's less than half of 2005's 13% increase, but it's also a return to the historic norm.
For buyers, this return to reality means greater opportunity. Inventory is up, so you have more homes to choose from, more time to select wisely, more leverage in negotiations and better protection in contracts, with contingencies for home inspections, for example.
For sellers, a more balanced housing market means lowered expectations. Gone are the days when you could slap any home on the market and sell it for more than the asking price. Now you have to find the pricing sweet spot and work harder to reel in a buyer.
Sellers: Price it right
Judging by stories we've heard from sellers in Las Vegas and northern New Jersey, lowering your expectations can be painfully difficult. Sellers often reject their agents' advice to lower their asking price, then find that their property takes longer than expected to sell. Some are also enduring open houses that attract few potential buyers -- or none at all -- or cutting the price more than once before finally getting an offer.
Take the Olivers of Las Vegas. Erik is a firefighter for Clark County, and Crystal is a metro police dispatcher. Their Vegas roots run deep enough to defy the general trend that their agent, Eileen Engel, describes this way: "People come, people go, but people don't move up in Las Vegas." The Olivers have traded up twice over the past several years.
Their second home sold in just one week in 2004, but their third -- a 1,900-square-foot home on a 4,500-square-foot lot -- took three months to sell. They bought it for $260,000 and wanted to list it for $350,000. Engel told them that was unrealistic because of competition from new homes being built in a nearby master-planned community. So the couple started at $330,000 but ended up dropping the price by a couple thousand dollars every few weeks, as the deadline approached to close on the purchase of their next home. When they hit $318,000, they found the right buyers, who liked the location and didn't want to wait for new construction.
Pricing was also a challenge for Jeff and Jackie Wides, formerly of Florham Park, N.J. When the Wideses decided to "pre-retire" to a new home in North Port, Fla., 35 miles south of Sarasota, they expected a quick sale on their home of 22 years. Preparing the house for sale was simple: painting, neatening up and restoring a closet in a den that had been converted from a bedroom. Against their agent's advice, the couple listed their 2,500-square-foot house on an acre of land for $650,000. Nearly five months and three price reductions later, it sold for $580,000. "It turned out the agent knew more about it than we initially thought," says Jeff.
It can be difficult to price a property when recent comparable sales are higher than you can reasonably expect to get for your home. Roberta Murphy, a real estate agent in San Diego, says you have to look not only at the sale price of comparable homes but also at how much time they spent on the market. Keep in mind that houses that are on the market for "too long" can develop a bad reputation, and today's buyers are more clued in to time on the market than in the past. "Buyers often ask about it and construct their offers accordingly," says Murphy.
Murphy recommends using "value range" pricing. If the sellers think their home is worth $600,000 but in reality it might be worth $575,000, Murphy would list the price at $550,000 to $600,000. "It's a soft way to introduce sellers to a reduction, and it gives buyers a range where the offer should come in," she says. Actually, Murphy always uses a number ending in 9's for the low end of the range -- $549,999, not $550,000 -- to improve the chances that the property will be captured by Internet searches.
Stay flexible. A more balanced market means you'll probably be negotiating with the buyers. That was true for the Olivers, who went back and forth a couple of times on the terms for their Las Vegas house. The buyers finally offered $317,000 but said they wanted the appliances. The Olivers didn't want to give up their washer and dryer, but for $1,000 more they were willing to leave the fridge.
Don't judge an offer on price alone; other factors may make it worthwhile. For example, a buyer may be willing to rent the house back to you until you're ready to move. Or maybe you've found a buyer who can easily qualify for a mortgage at your price but who will have difficulty coming up with the down payment or closing costs. In that case, a seller contribution might make sense in exchange for a higher price.
Make it stand out. At a minimum, make repairs, clean your house, and get rid of clutter. To compete with new homes in their area, the Olivers landscaped their backyard and put in a sprinkler system. They cleaned the house thoroughly and had it staged to look more like a model home. To make the master bedroom appear bigger, they put in a smaller bed and dressed it with a new comforter and linens to give it a sophisticated look. The couple even stayed with Crystal's mother while the house was for sale because Crystal was working the graveyard shift and they didn't want to put off any prospective buyers.
You'll also give buyers peace of mind if you are willing to share the cost of an appraisal and appropriate inspections, such as for termites.
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