January 19, 2012 at 1:15 pm EST | by David Bediz
Practical prices

Last weekend I toured two Capitol Hill homes with clients from out of town. The first was priced at $1.1 million and had been renovated nicely, but had no parking and only one full bathroom upstairs. It had an unfinished basement, and it also didn’t have a single closet in the whole house.

The second house literally backed up to the first: they shared the same alley for rear access. It needed a little work, but it had parking, a master bathroom en-suite, and a second bathroom upstairs, a separate apartment downstairs, plus almost all the original mouldings and hardware, including three pocket doors, for $949,000.

I knew the first home was overpriced without even seeing the second and when the agent asked my opinion, I was frank about my feelings. She tried to justify the price using other smaller, more expensive properties that, not suprisingly, were also not yet sold. She also mentioned that the current owners had put a lot of money in the renovation. Neither of these are justification for my buyers to overpay for the home, especially when there is another home with a better layout in virtually the same location for $150,000 less. At last, she conceded that the list price was set by the sellers and it “is what it is.”

I understand the thought process those sellers must have went through — I’ve been a seller many times myself and I see other sellers doing the same thing all the time. Seemingly sound strategies take hold in their heads, but end up ultimately wasting a lot of time and costing them emotionally and financially too. Some of these thoughts are:

“I’ll just price it higher than it ought to be listed, because you never know if someone will come in and really like it.”

“I put so much in the renovation that I couldn’t imagine taking a hit.”

“I won’t take a penny less than what I bought it for in the first place” or better yet: “I won’t take a penny more than what I bought it for plus what it will cost me to sell it.”

“I’ll price it higher so I can give myself some room to negotiate.”

These “strategies” are all invalid. A home should be listed at its market value, perhaps just a hair more, in order to sell. And the truth is, most homes are usually pretty easy to value. Even in D.C., where homes can vary in size, condition, layout and finish level in infinite ways on just one block, these variations can all be accounted for and used to adjust the estimate to find a valid range of possible sale prices. A good agent will perform almost the same research procedure that an appraiser would, with a little more leeway to adjust for their own hunches based on their market experience. This research involves searching past sales, using a price-per-square-foot as a basis, adjusting based on differences in size, finish, amenities and other considerations, and also comparing the home to others currently being marketed.

Once a range of values is found, I usually arrive at an average value for the suggested listing price. Of course, if the home has certain problems with it (poor view, awkward layout, iffy location, etc.), it will be priced toward the cheaper end of the price spectrum. A home with all the bells and whistles, no real problems and all the latest improvements would be at the top of the spectrum.

My suggested listing price is not necessarily the price we take to the marketplace, however. Sellers must buy into my research and understand the thought process so they can actually choose the listing price themselves. This is the point where the reality of the marketplace meets the fantasy of some seller’s expectations, for a bloody fight to the death. The thoughts I identified above rear up and challenge the cold, quiet numbers on the page that show the value without much emotion at all. Sellers dream of a fantasy buyer with so much money they don’t have to worry about overpaying. They wring their hands and fear their own self-deprecation for having bought an investment that may have lost some value. They think they can plan each step in a high-stakes dance with buyers to haggle to a higher sale value by shooting for the moon with the asking price.

In the end, no matter what the seller decides, reality will win.

If sellers let their fantasies and fears set the strategy, the listing will sit on the market for months, maybe even years. Agents will waste their time, resources and sometimes their reputations trying to sell a lousy deal and never collecting a commission. And worst of all, if the home ever does sell, it will undoubtedly sell for less than its true value because of the daily drop in value from the stigma of ever-increasing days on market.

If, however, the cold, hard truth of the value of their home sets in, sellers generally will sell quickly, with better terms, and sometimes even have competing offers.

So, to the seller of that million dollar mistake, look clearly in the mirror and see the reality that your home needs to have more bathrooms, a closet or two, a finished basement and parking before you can even think of listing higher than your neighbor’s, renovation or not. And to the other seller, kudos for not using an active comparable (overpriced) property as a basis for your own list price. But, you haven’t sold yet either, so it could be that your price was a little aggressive too.

To everyone else out there thinking of selling: whether you may sell for a profit or for a loss, you’ll only sell for the home’s actual value at the end of the day. A good agent will identify the value and any easy ways to increase it and market it to feature all its good qualities. But ultimately, it’s the seller who must understand the realities of the market and choose the listing price rationally without giving way to fears or fantasy.

David Bediz is a principal of the Dwight & David Group at Coldwell Banker Residential Brokerage. He is also on the Board of Directors for GCAAR, the Greater Capital Area Association of Realtors. He can be reached at 202-352-8456 or through dwightanddavid.com.

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