Category Archives: Selling a Home

Your Home’s Value: Who Wants to Know?

Paper house attached to yellow blank price tag on blue backgroundI normally don’t push syndicated content produced by nameless writers at marketing companies, but this article, “What’s your home’s price tag now?” makes some good points. (Despite an inappropriate title.) ((Could I be any more grudging in my praise?))

The idea is that, accustomed though we might be to thinking of a home’s worth as its likely sale price, there are actually three ways of looking at a home’s value. It depends on who’s doing the looking. These include:

  1. Market value (the likely sale price).
  2. Replacement value (costs of reconstruction, for insurance purposes, after a total loss).
  3. Property tax value (how much the government says it’s worth before sending you a property tax bill for several thousand dollars).

Understanding what each of these figures means, and how each is arrived at, will help you to both avoid confusion and know whether you’re paying an appropriate amount in taxes, covered adequately by insurance, and can sell your house for your hoped-for amount. The article itself explains these details well.

About that inappropriate title, however. Did you notice that none of these three figures would necessarily be the “price tag” that you’d place on your house if you were to put it up for sale?

Savvy home sellers do enough research (and get a Comparable Market Analysis or CMA from their real estate agent) to help them understand their property’s likely market value, but they then set a list price based on what will most likely reel buyers in.

Many sellers adjust the list price downward from the apparent market value, hoping to incite a bidding war that will ultimately take the price higher than they could have dreamed of listing it for. Then again, a seller may not want to set the list price too low, for fear that people won’t view the house as high-quality, or will wonder what’s wrong with it. See “Listing Your House: What List Price Should You Set?” for more on this topic.

There’s also one more measure of value that could have been added to this list: What amount the home appraises for. Before closing on a sale, the lender will doubtless require that a professional appraiser visit and attach a value to the property, as a way of reassuring the lender that it can foreclose for the amount it’s lending out. That appraised amount is supposed to be the “true” market value — but it’s sometimes less than buyers are actually willing to pay for the house, which can be a problem in some transactions. See “Low Home Appraisal: What to Do” for more on this.

Should Seller Allow Buyer to Do Pre-Offer Inspection?

OLYMPUS DIGITAL CAMERAThere’s a lot of buzz lately (at least in areas where multiple offers are making a comeback) about buyers getting the sellers of homes in which they’re interested to open their doors for a professional home inspection before, not after the buyer submits a purchase offer.

Buyers are being told that it will ultimately make their offer more attractive, given that they can, armed with extensive knowledge about the house’s condition, submit an offer with no inspection contingency. (The post-offer inspection, based on a contingency or condition written into the contract, is a time when negotiations often get contentious. Enough defects are usually found for the buyer to ask for repairs or a reduction in purchase price, and haggling over the details can consume — or derail — the entire process.)

Some sellers remain leery, however, of allowing pre-offer inspections. Let’s look at why, and whether these are reasonable concerns.

1) Sellers fear that the buyers will turn up defects in the property that even the seller hadn’t known about. True, this could happen. A seller who has lived in the home for years may have little idea of what’s been going on “under the hood,” so to speak. And once the seller knows of the issues, he or she will, in most states, be obligated to disclose them (or any of them that are “material”) to all other potential buyers. (See Nolo’s articles on “Preparing, Showing, and Making Disclosures About Your Home” for more on this.) As daunting as this might sound, however, it’s worth remembering that the truth about the house will likely come out eventually. Unless the market is super-hot and you’ve got buyers willing to waive the inspection contingency blindly, some other buyer will eventually conduct an inspection that turns up the defect, and you’ll be no better off than you would have otherwise been — or possibly worse off, if the buyers’ shock causes them to ask for a major price reduction.

2) Sellers feel they shouldn’t have to put up with an inspector in their home for a buyer who may not even ultimately bid on the place. True, if the inspection report comes back with a long list of defects, the buyer may get scared off completely. But there’s no reason to fear that buyers are running around casually hiring inspectors to write up reports on every home in which they’re remotely interested. These inspection reports cost a few hundred dollars a pop! Only a buyer with a serious interest in your home is likely to request a pre-offer inspection.

3) Waiting for the buyer to conduct an inspection might delay the process. Actually, this is more a concern for the buyer than the seller — as the seller, you don’t have to wait around for any one offer, but can put a deadline on considering them, and review other offers while you wait for the folks doing the preinspection to get everything scheduled and sorted. More and more home inspectors are, in light of this recent trend, making themselves available for inspections within a few days of being contacted by the prospective buyer.

Ultimately, the choice is yours, as the seller, as to whether to let a buyer conduct an inspection of your home before making an offer. But more and more successful home sales are now taking place this way.

Buyers Demand Tech-Friendly Homes

smart homeOne of the most striking results from a recent Better Homes and Gardens real estate survey was that a whopping 87% of luxury homebuyers would not even consider living in a home that isn’t tech-friendly, or “smart.” This wasn’t the only must-have on the mind of these affluent homebuyers — they would also find it hard to live without a garden oasis (53%), an outdoor fireplace or fire pit (50%), and a separate guest house, not attached to the main house (47%).

But look at the numbers differential! Eighty-seven percent is so close to an across-the-board vote that it’s hard not to imagine that the few remaining affluent homebuyers are either from a generation that never had to learn to use personal tech devices, or will simply be spending too much time on round-the-world travel to care how what their house is wired for.

Even if you’re selling a home that doesn’t qualify as “luxury,” these results are worth noting. Buyers of luxury homes tend to set the trends for other buyers. And although clever staging can hide, say, a lack of electrical outlets, more and more buyers may start looking closely at whether your house can actually support their tech needs. And on the other side of the coin, you’ll get an advertising boost if you can describe your home’s technological features and capacities. Automated appliances! Climate control! Intelligent lighting!

What exactly does creating a tech-friendly or smart home involve? Asking tech-savvy friends how they’ve adapted and upgraded their homes is probably a good start for finding practical guidance. Also check out online sources like Globitor’s “Tech-Friendly Tips for Upgrading Your Home,” Lifehacker’s “How Can I Bring My Tech-Unfriendly Home into the 21st Century?,” and CNET’s “Automate this: Smart devices for every corner of your home.”

Strategic House Pricing: A Little Low, a Little High, or Is There a “Just Right?”

savannah houseHere’s a “must-read” for buyers and sellers of real estate this week: Bob Hunt’s article on RealtyTimes, “What Is the Correct Way To Price a Listing?” Hunt analyzes a recent article in the Wall Street Journal (August 8, 2013), which described a study purportedly finding that “higher starting prices are indeed associated with higher selling prices.”

The underlying reason posited by the study’s authors is a phenomenon called “anchoring,” which basically means that home buyers develop a respectful first impression of a home with a higher price tag, and are thus willing to pay more for it in the end.

Kudos to Hunt, however, for pointing out a basic flaw in the study: The price variations they’re talking about ranged from about $117 to $187. Hunt notes that this has all the significance of “a rounding error.” I can’t add much to his reasoned analysis, but let me call those dollar amounts by another name: Puny! As a percentage of a home selling price, so insignificant that they might represent mere quibbles over repairs!

In the meantime, having observed bidding wars on a number of occasions (they’re common here in California), I can say that there are times when underpricing a house has the exact effect that real estate agents anticipate: They bring in scads of interested buyers, some of whom will fall in love with the place and bid amounts that are far higher than anyone would have realistically set as an original list price.

But that’s in one market, and may not work for every house. Once again, I can’t do better than to refer to Hunt’s observation that, “[A]s far as answering the general question, ‘What is the best pricing strategy?’ we still have a long way to go.”

When Is a Room a Bedroom?

bedSquare footage? Who cares about square footage? It’s the number of bedrooms in a home that’s usually the key indicator when sellers advertise and buyers search for homes online.

Which raises the all-important question: What’s a bedroom?

In real-estate tradition, a bedroom is a room that has a closet as well as a door you can close. Makes sense: If you’re going to sleep in a room, you’ll want to be able to close the door. And when you wake up, you’ll want to grab some clothes from the closet.

From the standpoint of the seller, this standard means that you’ll have trouble fudging the number of bedrooms. Clever staging won’t do it: Just putting a bed into a room doth not a bedroom make.

Unfortunately, that doesn’t stop some sellers from trying to expand the definition of a bedroom. I recently attended an open house for a place advertised as three-bedroom. The upstairs level clearly had only two.  The basement was unfinished. The main floor seemed to have all the normal rooms you’d expect on a main floor, with nothing resembling a bedroom.

I asked the agent, “Where’s the third bedroom?” Ruefully, she inclined her head toward a space off the living room that was obviously a den, with a couch and TV. No closet. The agent explained that the seller had once used this as a bedroom, and knew that people would prefer more bedrooms, so the seller insisted on advertising it as a bedroom.

Now, it’s true that buyers prefer more bedrooms. But for the buyers who really need a third bedroom for their large household, a room with no closet just isn’t going to cut it. They’re going to feel nothing but disappointment as they view the home.

And for the ones who are looking for a third bedroom because — as is common — they need a home office, there’s a perfectly good way to advertise it. Call it a bonus room! You see it in listings all the time, and the home-office seekers pick up on this quickly.  Such buyers might even prefer a home that doesn’t come with the price markup that’s expected for an additional bedroom.

Last I looked, the three-bedroom — no, make that two-bedroom — house I visited was still on the market.

In Housing Limbo, Sellers Scramble to Find New Homes

IMG_4418“I really hope I don’t have to move in with my mother-in-law.”

“I’ve had to move into a rental in a scary part of town — there goes my down payment for the next house.”

“Well, at least my parents haven’t done anything with my old room.”

These are all from stories I’ve heard on the local, Bay Area grapevine.  Anecdotal accounts, it’s true. But I’d hazard a guess, from the current state of the real estate market, that plenty of other recent home sellers are having the same trouble.

They couldn’t afford to buy a second house before selling the first one — banks aren’t exactly sympathetic to carrying two loans these days. But after the sale is done, they have nowhere to go. Inventory is low, and in this part of the country, multiple offers are becoming normal again — at tens or even hundreds of thousands of dollars over the list price. (Remember when the market felt so slumped that it could never unslump? Weird.)

The only silver lining to the low inventory is that buyers are often so grateful to be in contract to buy a home that they’ll bend over backwards to accommodate sellers’ needs to stay a little longer, an arrangement outlined in Nolo’s Q&A, “What happens if we’ve sold our old house without buying a new one?” But even the most sympathetic seller isn’t going to want to wait around forever.

Athletes Who Over-Customize Their Homes May Have Trouble Selling

foosballIt’s not a problem that most of us will ever have — but it’s a good reminder of the general principle that homes fixed up with special features to suit the owner might eventually drive away would-be buyers. “Over-customization,” you might call it. Athletes with multi-million dollar contracts seem particularly prone to this syndrome.

Take a look at Tiger Woods’s $6 million digs for example: It’s not easy to dwarf a house with its own amenities, but this place comes close, with a tennis court, diving pool, lap pool, running track, boat slip, and golf green.

According to “Broke,” the 30 for 30 film by Billy Corben, one of the first things an athlete often does after hitting the big time is to buy a house for Mom. And another one for himself — a big one, with lots of rooms, perhaps a bowling alley or two. And then he goes on to buy a few more houses for friends and relatives. The title of the movie should tell you where all this often winds up, with the houses on the market or in foreclosure within a few years.

Alex Rodriguez is getting credit, however (in Darren Rovell’s article in ESPN), for having had the foresight to add nothing more than an indoor batting cage to his Miami Beach mansion, even while he poured in over $7 million worth of  improvements. (He added white oak flooring. a zen garden, a rooftop deck, and so on.) A-Rod bought the place for $7.4 million and recently sold it for $30 million.

The buyer was not an athlete, but a businessman. And that’s “an important distinction,” says Rovell,  “since so many athletes customize their homes so much that they find trouble selling them to anyone outside the sports world.”

So, there you have it. Best stick to a foosball table, that you can take with you when you move.

Disclosures, Schmosures: First, Make Sure Would-Be Buyers Don’t Get Hurt!

MINOLTA DIGITAL CAMERAA recent California case is being hailed as an expansion of the listing real estate broker’s duty to warn buyers of dangerous conditions within the house. The case is called Hall v. Aurora Loan Services, LLC, 2013 DJDAR 5460 (April 26, 2013). In many ways, however, it’s a reminder of how common sense, rather than reliance on the letter of the law, can save home sellers a whole lot of hassles — such as broken legs and lawsuits.

Here’s what happened. The home seller, prior to putting the house on the market, commissioned a home inspection. This is a common practice among sellers in order to get a heads-up on home defects and potentially fix some of them before buyers have a chance to use them as negotiating points. The inspector’s report mentioned that the pull-down stairs leading to the attic needed “repair and replacement.” (Not, obviously, the stairs shown in this artsy image.)

Wouldn’t you think common sense would be screaming in your ear at this point, “Fix it!”? Or at least put up a warning sign? Or at least ask more questions if you weren’t entirely clear on what the report was saying?

But neither the seller nor the selling broker did any of that. Instead, in keeping with California disclosure obligations, they provided copies of the inspection report to everyone who visited the house. One of those visitors was a real estate agent with her clients. The clients ascended the stairs, the real estate agent followed, the stairs collapsed, and the agent fell and broke her leg. Lawsuit time!

Not terribly surprisingly, the court said, in essence (yes, I’m paraphrasing hugely here),  “Don’t just hand people the darn report, tell them the stairs are dangerous!”

But really, the most pithy commentary on this whole sad sequence of events was offered by the bloggers at the Law Offices of James J. Falcone, who said: “The [court] opinion doesn’t say how the clients, now stranded in the attic with the agent writhing in pain on the floor below, got out of the attic.” Indeed, court opinions often leave out the most interesting facts!

That Drone May Shoot Your House — In a Good Way

earthI was feeling like all real estate news had turned into an endless loop of the same material (c’mon, how many times have we seen that St. Joseph statue story already?) when I came across this item from Paul Hagey and Inman News: “Drones are ready for real estate.”

That’s right, tiny unmanned, remote-controlled helicopters are becoming affordable, and photographers are figuring out how to stabilize them for high-quality pictures and even video,  allowing prospective buyers to see views of your property that you’ve never experienced yourself.

You’ve got to admit, this is cool stuff. Even cooler when you read the part about how not even a normal plane or helicopter can get low enough — in the 300-feet-over-your-house range  –  to take photos with of similarly impressive detail and depth of field.

Of course, not every property will look good from the air. Last time I looked at my house on Google maps, it looked like a square of gray (that being the roof) set against a lot of other gray (those being the neighbors’ roofs and the cement of nearby roads) plus the occasional dot of green (uh oh, I really should prune back that jasmine vine). But the nearby high school swimming pool looks really great.

So if you’ve got a house with a pool, you may want to be an early adopter of this drone method of real estate advertising. The same goes if you’ve got a luxury property that looks more shapely from the air than my little square of gray. Or if you’ve just got a really stunning roof.

Really? Sellers Can Paint the Walls in Actual Colors?

For a while there, “neutrals, neutrals, neutrals,” seemed to be running a close second behind “location, location, location,” for favorite real estate tag line. Home sellers were advised to paint as much of their house as possible before putting it on the market — and to paint only in inoffensive yet alluring shades of what you and I might call tan, grey, and white. (The paint vendors, of course, call them “bisque,” “barley,” and other similarly tasty terms.)

SONY DSCBut hold everything: The word on the street now is that “bold colors” work very well if you’re trying to sell your home to “millennials,” or buyers currently in their 20s and 30s. This according to experts quoted by Richard Eisenberg in his article “How Boomer Home Sellers Can Hook Millennials.”

If you believe the paint companies, “Emerald,” “Aloe,” and “Lemon Sorbet” are what’s trending now. In fact, florals, patterns, and wallpaper are said to be making a comeback, too.

Pity all the home stagers whose websites include “Before” and “After” pictures in which they painted over perfectly respectable colors with shades of blah!