The Top Ten Ways to Incorrectly Value a Home
The 2nd in the Series…
As REALTORS®, we get asked, “What’s my (or that) home worth?”
It’s a great question. How DO we value homes? There are some correct ways, and incorrect ways. People accuse REALTORS® of pricing a home just to sell it! If you reacted sympathetically to that statement, re-read it and then think for a minute: REALTORS® just want to price a home to sell it.
YES, THAT’S THE POINT! YOU WANT TO SELL THE HOME, RIGHT?!?!
You want to move, not operate a museum or tourist attraction. Right? You aren’t charging admission. Right? I know that sounds a bit over the top, but the hyperbole is meant to point out some serious issues.
Let me share the ten ways NOT to value your home. I will start with those that are baseless and migrate to those that at least have SOME basis.
1. What I (the Seller) think it’s worth – Well, you’re not buying the home. You’re selling the home. So, your opinion is the least objective in the entire process. And, if you ain’t buying your home, you are a price taker in the market…so it’s also the least relevant opinion. Even in strong Seller’s markets, you still take the price the market will bear – thus it’s the Buyer (and the market) that determines the price. You are taking a price that is the result of a Buyer’s process of elimination, not a process of adulation.
2. What the Buyer would pay for my memories (aka: emotion +10%) – This falls into the category of “sequel cinematic releases”. Because Mission Impossible was a good movie, Mission Impossible II, III and IV should be EVEN more valuable. WRONG! Just like a re-run movie, your re-run home (no matter how nice) may be positively received by an audience, but that doesn’t mean they’ll pay $40 per ticket to see it. The Buyers don’t care that Timmy had his first birthday party there…or that this was your first home with your spouse. It’s about the Buyers, not the Sellers. So, unless you’re a Seller named Johnny Depp, Brad Pitt or Beyoncé, there is little excitement people will feel about your used home – compared to you.
3. What your family tells you it’s worth – Really? Aren’t these the same people that told you “they knew you shouldn’t have married your first spouse (but never told you until the divorce was finalized)”? Are they the same folks you are listening to now? Don’t listen to them…unless they are telling you that “that [dress, shirt, outfit] doesn’t make you look fat”… THEN their opinion is helpful. It’s still worthless; but at least the “you’re not fat” opinion makes you feel better. Yes, these are the same people that told you (at 5’9”) that you had moves like Kobe, a sky hook like Kareem-Abdul Jabbar, and Bradley Cooper’s good looks. Ego-petting does not sell homes.
4. What the neighbors sold their home for – This starts to get into the realm of reality. It kinda makes sense, right? It’s in the same neighborhood. It’s kinda like your home. It’s the same builder. So, the logic tracks…Well, this gets to the same point as saying, well my spouse is the same as the neighbor’s. You could substitute spouse for house and say the same things…but I bet your answers would change! Why? Just like a spouse, a house has different qualities and appeals to different people. So…that won’t necessarily work. However, if you think of your spouse as a set of individual qualities and not aesthetics, you are getting on the right track. (But that is for the next blog…on how to do things correctly.)
5. What it cost me – Quick note to Seller: Nobody cares.
6. What I owe on it – Quick note to Seller: See bullet #5, with one caveat. Your bank and lien holders care about any outstanding encumbrances. Buyers don’t. While this may involve a short sale…that still doesn’t mean anything relating to price or the market. The only thing the Buyer may care about is how / if the bank turns the process into:
a. Peyton Place (PS to Denver readers, this is not referring to Peyton Manning of the Denver Broncos)
b. Dark Shadows
c. Dynasty or
e. or if it is truly a frightening experience, the “Twilight Saga” series
7. What is the area cost per square foot – This is a variant on bullet #4…and is getting closer to the point (like the tail end of bullet #4). However, it’s only a milepost. Let’s be ridiculous for a second…is a 1,500 square foot home worth $150,000 which is a ranch, comparable to a 1,500 square foot home worth $150,000, which is 4 stories tall on a small patch of land? Both are $100 per square foot. However, the utility of each varies. Nevertheless, this DOES have some value in benchmarking an area…but it’s not QUITE there yet…
8. What I will fix up between listing the home and closing on it – This is a long-winded reason that is simple to explain. Many Sellers don’t think of Selling their home as a project with a desired outcome. They think about it as a chore. And like a teenager with their chores, they complain, leave them incomplete and still expect full payment. To quote Johnny Cochran (who was a REALTOR®…did you know that?) who famously opined: If the listing isn’t FIT, you must this listing quit! I understand he used a variant of that sometime later in his career. His wisdom means: price it for what you are willing to accept as its marketed condition. People don’t see the one chore you know is incomplete (and are fixing). They just see a hassle…and the 20 perceived incomplete chores that in the Buyer’s mind exist…even if there is only truly one chore left. In short, don’t price it for what you PLAN to do…DO IT, then price it to the completed task. You’re asking a Buyer to play “Three-card Monte” with $100,000 to $1,000,000 of their money. They won’t…they’ll walk.
9. What we can test the market for? – This is a trap…the price is never LOWER, it’s always higher…and unrealistically so…like get nosebleeds and the oxygen masks fall from the overhead compartments type of pricing altitude…that induces altitude sickness in prospective Buyers. Ironically, it is often based on one of the aforementioned eight bullets and leaves the Seller with the impression they are holding the “Sword of Damocles” over the REALTORS’® head if it isn’t agreed to. In fact, it’s not a “Sword of Damocles”, but more of an elongated, slow motion exhibition of the ancient Samurai ritual of hara-kiri the Buyer performs on themselves, wherein the home price is subjected to an equally painful (and lethal), public disembowelment when Buyers avoid it. Sellers seem to think that the price will bring out the “serious Buyers” for their home…however, I always caution them: people will view the home like one would watch a live police chase on the 5 o’clock news…but like a police chase…nobody will want to participate in it. Do you want to price your home like the national debt? Call your Congressman (they’re not doing anything useful now). Want to price it to sell? Stay tuned for my next blog on how to price it right.
10. The any/all of the above option – Invariably, some of us are pigs and don’t settle for one path to overpricing homes, but decide to “load up on all of the above” or a variant thereof. Ok, overachievers: 1+1 may equal 3 in a team-building workshop…but trying to build synergy through use of multiple choice of the above only means you will enjoy your home long after you want to.
To be sure, some of these were pointed and over-the-top…but hopefully there is some humor and truth in here to think about. All of the above are ways to NOT price a home…
In the next blog, we’ll get serious and share the how’s of home pricing…and more importantly SELLING your home.