The following is an excerpt from Ric Edelman's best-selling book, The
New Rules of Money.
Rule #18: If you're the seller, accept a lower price.
In many parts of the country, the real estate market has been in the doldrums for several
years. Much of this is due to unrealistic attitudes about the local real estate
marketplace. So, allow me to offer two kind and gentle words of advice to those selling
real estate, and to the real estate agents assisting them.
Get real!
The price you have set is too high. There has been a recession in the real estate market
for years now, and your home is not worth as much as you think It might not even be worth
as much as it was 10 years ago. If you want to sell your house, you need to lower your
price.
Just because you think your home is worth a certain amount of money doesn't mean it is
worth that amount. Put yourself in the buyer's shoes: Would you buy your house for the
price you are demanding? I don't think so. You need to lower your price. Maybe not by the
40% that the buyer wants, but by something. So, exactly how do you determine how much your
house is worth?
--Many people who are preparing to sell their houses begin by looking at what they paid
for their house. Wrong. The price you paid is irrelevant.
--Adding up what you paid in improvements and decorating? Irrelevant.
--Looking at your current mortgage balance? Irrelevant.
--Basing the sales price on what you need in order to buy your next home? Irrelevant.
--Calculating what the sales price needs to be so that the house will have proved to have
been a profitable investment? Irrelevant.
--Comparing the value of your house with other sales that have occurred in the
neighborhood over the years you've lived there? Irrelevant.
When selling a house, there is only one relevant number that matters, and that is the
price that a buyer is willing to pay. I know that your heart and soul are built into your
house, that feelings of family and self-worth are painted on every wall. But the simple
truth is that none of that matters. The people purchasing your home are merely buying it,
after all. They are not adopting it. Stop emotionalizing the transaction. The house's
price is what the buyer will pay. Nothing more, and nothing less. Since you are too close
to the situation, you need to defer to your real estate agent and appraiser, both of whom
will give you a much more realistic view of the current market value of the house. Listen
to them, and act accordingly.
You can resist this advice all you want. It won't change anything, because you'll
eventually do what I'm telling you to do. It's just that doing it now will save you a lot
of money. As one client of mine can tell you.
Jan called me one day, quite discouraged. He'd been trying to sell his house for six
months, without success. He originally listed his property for $410,000 (which he knew was
too high), and later dropped the price to $389,000 (more in line with recent sales in his
neighborhood). Still, no offers.
"My real estate agent wants me to cut the price to $379,000," he told me.
"But I want to see if anyone will accept $389,000 first."
I asked, "How long do you think it will take you to get an offer at $389,000?"
"Four or five months," he replied.
"And how quickly do you think the house will sell if you price it at $374,000?"
I asked.
"Right away!" he exclaimed. "It's already on the low side compared to
recent sales on my street, and I've got a finished basement. At $374,000 it's a
steal."
"One last question," I said to him. "How much is the house costing you to
maintain?"
"Well," he pondered. "If you factor in everything - the mortgage,
utilities, maintenance and so forth - I guess about $4,000 a month."
"Then the answer is obvious," I said. "You need to price your house at
$374,000 right away." That was $5,000 lower than even his real estate agent, Marty,
had suggested.
"What?" he demanded. "I'll take a bath!"
"You're taking a bath now," I said." You just don't know it."
I quickly went through the numbers with him. If it takes four months to sell the house at
$389,000 as he said it would, Jan will spend $16,000 carrying the property in the meantime
- cutting his profit to $373,000. Therefore, by listing the house at $374,000 right now,
he'll sell the house immediately - and net $1,000 more than if he holds on for the next
four months - which will only happen, by the way, if some poor clod agrees to pay $21,000
too much, which is highly unlikely. Therefore, if Jan tries that gamble, it's more likely
that he'll just end up selling the place for $374,000 anyway - after he's wasted four
months and $16,000.
If you have a house to sell, drop your price. And get on with your life.
copyright @ Ric Edelman, The New Rules of Money.