Friday, November 16, 2007
Pricing houses in a crazy market
It’s getting tougher and tougher to put a price on a house that someone may want to sell. The problem is that so few houses have sold this year in many areas that finding valid “comps” is difficult. I was just out on a visit yesterday to a really nice old farm house in the area that the owner would like to sell. He’s done a fantastic job of fixing it up and it is worth a lot more know that when he bought it. The issue for me is that is has been more than a year since anything like it has sold within an area that includes his township and townships on either side. I just can’t find any comps to use in my analysis. To make matters worse, I just know that this house would likely have sold for at least $30-40K more just a year ago, and will likely be back at that level as soon as the market adjusts to a more normal state. If this seller had the option, I’d be darn tempted to tell him to hold on to it until the market recovers; but, he does not have that option – job transfer.
So, what to do to price this house? I’m having to use comps that are not exact matches and comps that are much further away than I’d like and I’m having to take a SWAG (you all know what that means) at what the current market impact is on what otherwise would be a good price for a nice home like this. We’ve already had the conversation about trading money for time and the discussion of the current market conditions. Fortunately, most sellers these days have been pummeled with so much bad news about real estate in the press that they are much more realistic about things. Still, it’s tough to accept that you put a ton of money into fixing up a place and how you’re not going to get very much of it back.
I was at a similar meeting the night before and in that case another job transfer is going to result in the seller being considerably upside-down (owes more than he can get for it) on his house. His was a really tough situation, since comps were no problem (over 20 houses for sale just in his sub); but, the comps led to the conclusion that his house is worth less than it is mortgaged for right now. That seller has accepted that fact and is ready to move on with life. The secondary impact of that is that his family will likely have to live in a rental on the other end while he rebuilds enough savings to afford to buy another house.
It’s not a fun position to be in to have to tell an owner that they have to bring money to the table to sell their house or that they won’t make back what they’ve put into their home. It’s just as bad to have to tell an elderly couple that the retirement nest egg that they were counting on from their investment in a house is going to hatch an ugly duckling and not the beautiful swan they had hoped for. At least the job has been made a bit easier (though no less troubling) by all of the media coverage of the current house value meltdown. Just remember – “Don’t shoot the messenger.” I’m really trying to work for you when you sell; but, I have to work within the confines of the current market.