I Can Only Sell Your House if You Help Me
Subtitle: Anatomy of a Deal Gone Bad
©Copyright 2013: Richard von Sternberg, All Rights Reserved
About a year ago I was asked to come give a presentation to a family that wanted to sell their house. They were a nice family, well-meaning folks. Our meeting went well and they asked me to be their Realtor® and get the job done. I said I would do a thorough market analysis and find a price “ball-park” that would spark interest, bring willing buyers and, hopefully, engender offers for them, a price range I would offer as a suggestion based on hard data about the local market. We set a time for our next meeting and I went off to do what I was trained to do by my many years as a property selling machine for Chase Bank.
I have sold hundreds of houses. Selling properties for the real estate division of a bank is quite different from just listing properties on the MLS and hoping for the best with a private-party sale. Perhaps the biggest difference is the level of expertise in the bank’s asset management departments, the very high real estate consciousness in the many people who watch every move you make from the moment you are assigned one of their foreclosed properties until you send the last message saying the escrow has closed. From the investors who put up the money for the loans the bank makes down through the directors and managers in the bank to the asset managers assigned to work with agents like myself, there is a constant pressure to perform, to make a property sell and get it off the books. Those of us agents who sell bank properties are literally graded on the many things we have to do to get a property sold:
--How long does it take us to get occupants in an occupied house out?
--How long does it take us to get the property cleaned, utilities on, repairs made, market ready?
--How accurate and timely is our market analysis?
--How on-time are our weekly inspections, monthly market assessments, quarterly broker price opinions?
--How well do we manage all the paperwork associated with the offers we receive?
--How long does it take us to get the property into escrow?
--How long does it take us to get the escrow closed?
--How close was the selling price to our initial estimate of value?
This is only a partial list, but it should serve to show you that your every move is scrutinized as an REO agent. (REO means real estate owned by a bank)
When I was first offered the position, I was told that I would get the opportunity to have a small number of properties assigned to me and then be watched to see how I did. If not well, they would cease sending me assignments. The better I did, they told me, the more properties they would send me.
They liked my work from the beginning. At one point I had dozens of assignments at a time which I sold and sold and sold. I worked every day and night and slept about five hours every day for a few years until the foreclosure crisis was examined at high levels in our government due to its extreme political unpopularity and a moratorium was declared, assignments became fewer and fewer. This history of what took place during America’s foreclosure crisis, although very interesting, is not pertinent to my present story about the necessity of a seller to utilize and harness the expertise of a good agent rather than attempt to micromanage the job of the agent through unrealistic and unrealizable expectations. What IS important and pertinent here is that my high skill level in marketing a property is attributable to the many asset managers who were my mentors as they pressured me to constantly be circumspect, mindful and ever tightening my ship, to never overlook even the smallest detail, never veer from the goal of getting the job of selling the property done professionally, in a timely manner, leaving no money on the table.
My very first “move” was to bring a house-flipper to see the listing for his assessment of its value in the condition in which we found it when the family felt ready to list. I told them my purpose was to establish through this contractor the cash value of their property so we might know what to expect from the very bottom of the market. At the same time, I told them, I intend to pick the brain of the contractor to get his idea of what improvements the sellers could make to the property to make it more appealing to the market. His lifetime of rehabilitating houses to put back on the market for profit was an important ingredient for making my new listing market-ready. He was an expert in his field and had absolutely neutral things to say about what would be the best way to improve the house for market (such as: remove the old paneling from the walls and paint those walls white to brighten up the otherwise dark rooms)
At the end of his analysis he said he would pay 350 thousand in cash in the condition the house was in so that he would be able to make all the improvements he felt were necessary (which he spelled out for me) and put it back on the market and make his rehab profit. The well-meaning family was offended by the amount the contractor would pay in cash and offended by the suggestions he had for its improvement because they had grown up in the house and were not able to put themselves into the neutral mind-set the contractor was used to adopting. Thus I was given my first clue that I could expect resistance to the reasoning used by neutral parties to establish value in properties such as Chase Bank had inculcated in my thought processes due to the emotional attachment the sellers had to their property.
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| The main pages of a Broker Price Opinion |
Next I set about to construct what is known as a Broker Price Opinion for the property as I had done several hundred times for Chase Bank. EMC, GMAC, ING Direct, Princeton Capital, and others I had sold REO’s for. The Broker Price Opinion (BPO) is an in-depth analysis of market conditions within a tight radius around the subject property (how many similar properties for sale, what price ranges, how long did it take to sell those properties in the current market conditions, what ratio of rentals to owner-occupied, general market conditions: values increasing, decreasing, remaining stable, employment increasing, decreasing, remaining stable). The BPO requires, for comparison purposes, three similar properties that have sold within that last 120 days and three properties that are currently for sale. Comparisons are made between each comparable property’s features and the subject property (square footage of house as well as lot, age, views, number of beds/baths, quality of construction, condition of property, fireplace, swimming pool, landscaping, number of days on the market, price per square foot, garage, basement and so on) and each comparable property’s value is “adjusted” relative to the subject property taking into consideration in what way the comparable is different from the subject property. For example, if the subject property has 3 bedrooms and the comparable has 2, the value of the comparable is adjusted upward. If the comparable has 2000 square feet and the subject property has 1500, the value of the comparable is adjusted downward. These “adjustments” are made for each feature of each comparable property until a range of values is created. The range of values for the SOLD properties become the parameters of value for the subject property.
In other words, a scientific analysis of actual market conditions is utilized to determine the market value of the subject property. There are actually two values called for in the BPO: The value in the market in the present condition and the value if certain repairs are made. The BPO has a section in which to enter the items recommended to be repaired or replaced and it must be specified how much it will cost to effect those improvements. At the end of the BPO there is a place to put comments about the neighborhood, pride of ownership, specific market trends, anything that may affect local values (environmental issues, traffic noise, proximity to schools, etc.) and the opinion of the two values:
- In present condition
- If repairs itemized in the BPO are made
There is a place to put photographs of each of the houses used as comparables as well as photos of the subject property: front, side, back, each room in the house, street view, neighborhood shots.
At the end of my BPO for the family’s house, I showed its value to be 480 thousand in its AS-IS condition and 550 thousand if certain repairs and improvements were made. When I delivered the BPO to the family I recommended they have a pest inspection done to the house so we all knew about conditions of the house that only an expert could tell us, thus eliminating any surprises a buyer might bring us from such an inspection. They agreed to having the pest inspection but were shocked by my analysis of the value of their property.
They told me they needed to get 625 thousand for the property. This was my second indication that their emotional attachment to the property was clouding their ability to form a true market perspective. I chuckled as I recalled the words of the office manager whom I hold in very high regard due to his decades of experience in real estate and his very abstract perspective about true market value. I actually quoted him to the family: “What you want or feel you need are not factors of the value of your property”, and saw the tension come to their faces as I spoke those words. I told them that their house was not worth 625 thousand dollars, but they insisted it be listed for that amount.
When I am in that position with a property owner, I tell him or her that I have a 10-day plan I like to invoke to test the market and the price they have chosen. I say I will agree to list the property for that price, but they must agree to “revisit” the value question after 10 days in the market. During those ten days I promise to: (a) invite all local Realtors to preview the property and tell me what they think the price should be, (b) hold at least one open house and survey each person who comes to it about their sense of value and (c) ask every Realtor who shows the property during those 10 days to provide their feedback about the property, their client’s reaction to our presentation and price, and their own sense of its worth.
In other words, I open a real dialog with the real market so the sellers can get the real feedback they need to sell into the market at the price it wants to pay. I tell them it is a mistake to leave a house for sale at an unrealistic price because it will become stigmatized after too much time unsold due to expectations that the actual market will not take into consideration. A high priced house quickly becomes stale on the market because, after all, real estate is a TRANSPARENT market. All of us in the real estate profession have access to the comparables I mentioned earlier and a buyer’s agent is doing the proper diligence with his or her clients when helping to decide if a house is priced well or unrealistically. You cannot fool the market or find a “sucker” to overpay for a property or wiggle your way around the truth of the real estate market.
I put the property on the market, held the broker tour, held an open house, called agents I knew to be looking for properties like the subject property and, in a few days, I had absolute confirmation of the correctness of the price I had recommended the property be listed for. I received an offer within the first 72 hours for 532 thousand dollars which the family found “ridiculous and unworthy of responding to” which, as you are probably thinking, was indication number 3 that these folks were on a collision course with the truth trying to justify their position with emotions, making a detour around the reasoning process altogether.
Several agents (20 or so) wrote me and said I had priced the house way too high. I passed these comments along to the sellers and they scoffed at the responses. When the ten days were up I told them it was time to have that discussion about how the market was speaking to them and that I recommended an immediate price reduction. I will never forget the words of one of the family members as she tightened her countenance, protruded her jaw and, with scorn in the tone of her voice, said: “We are putting money into the house and you are asking us to lower the price? I don’t think so!!!”
When I list a property I track its response from the web sites I get it on (Zillow, Redfin, Realtor.com, Wall Street Journal, Press Democrat, Coldwell Banker, CaliforniaMoves.com, and so on) to see how much activity it is getting and whether it increases or decreases. I also create a web site myself for each property I list and send it out to my database of over 5000 people, a web site that has a much more in depth description of the property than there is room for on the MLS as well as 50 to 60 photographs that I set in a slide-show set to music (I prefer Vivaldi’s Four Seasons). I get in-depth feedback from my web site about who is looking at it. At the end of every week I send a weekly market watch to my clients telling them:
--How many Realtors saw this property on the MLS
--How many people from the public saw this property on the public MLS
--How many people came to my open house
--How many phone calls and/or emails came during the week
--How many people went to the web site I created
--How many people viewed all the other web sites the property is listed on
--How many actual property showings were there during the week
--How many offers came in during the week
There is a weekly total and a cumulative total provided each week so a pattern can be detected after a few weeks to see if interest is being maintained or if it is waning. We can tell the effect of the emails I send to the database about the web site by the number of hits. Or the effect of a price reduction because I announce those to the database. I put my clients’ fingers on the pulse of the market their house is in so they know if they have chosen the right price.
Indication number 4 about the reasoning of my clients relative to their unrealistic pricing came when they told me that the internet was a compete waste of time, that the only people who looked at properties on the internet were time wasters with nothing else to do. When I asked them how they felt about the feedback I was receiving from the agents who were showing the property – a unanimous feedback, indeed, that we were way over market – they responded that those people didn’t know what they were talking about.
Weeks went by and interest in their property dried up. Nobody showed it after awhile. People stopped coming to the open houses I was having. The statistics coming from all the web sites indicated we were stagnating like a pond with scum floating on the top of it. The family finally agreed to a price reduction, but they were still about 40 to 50 thousand dollars over the market.
During this time houses began to come on the market that were on similarly sized lots, with a similar amount of square footage, but that were dressed up with today’s features (like granite countertops, stainless steel appliances, tastefully appointed kitchens and bathrooms, hardwood floors and tile, and so on) and priced 50 to 60 thousand dollars less than my listing. This began to concern me because it was becoming apparent that the market was learning that, for less money than we were asking, it was possible to buy a much nicer home. I sent the MLS print-outs of these homes to the family and got no response at all.
One day I got a call asking me to come meet with them and a glimmer of hope welled up inside me that they were seeing the problem and were about to do something about it. I refreshed my market research, updated my comparisons and came to the meeting ready to suggest that they lower the price to 550 thousand, or more appropriately from a psychological point of view, 549 thousand, a price at which I knew I could sell their home in a matter of days. I even knew which agent would bring the offer. But, no, that was not what they wanted to talk about. Instead they “ambushed” me and began scolding me for not knowing how to market real estate. They reiterated that I was foolish to put so much credence in the power of the internet (which made my head fill with all the lectures I had attended and the reading material I had perused pointing out that approximately 90% of all real estate purchases now originate on the internet). They told me that they resented my constant negative emails about what Realtors said about their pricing, the low-ball offer I had sent them and my lack of ability to bring them the “right” buyer. They berated, scolded and took a generally hostile stance toward me until I began to feel bad. I left the meeting feeling all my efforts had been superfluous, unappreciated and that my years of experience and hundreds of sales had no value for them.
From that day I became demoralized and felt it would not work out between myself and the sellers. The listing was just about to expire. I got a call telling me I would not be relisting the house and, frankly, I felt relieved. I also felt that the hundreds of hours of time I had put into marketing the property and all the money I had spent on the endeavor had been wasted, which precipitates out as unpleasant residue in a real estate deal gone bad like this one.
After a short time the property was relisted with another company. And can you guess how much it was listed for? 549 thousand. The opportunity that I needed to make right with the property, the price that would have worked for me, was ripped away from me and handed to somebody else who, as no doubt you have figured out by now, worked perfectly for that agent. The house sold right away and the final selling price was 542 thousand, an amount just a few thousand dollars more than the offer I brought the sellers 3 days after I listed the property. Had we counter-offered, we could have sold the house at the same price 6 months earlier.
I felt vindicated, of course, but sad that the sellers had not approached our deal unemotionally as I had in the beginning. Sad they had not paid attention to all the powerful cues I brought them from the real market, that they had not taken advantage of my expertise, that they did not see the value of what I have spent many years learning about marketing properties.
The truth is that I knew what to do to get the sellers what they wanted because I kept my emotions out of my research and recommendations. Had they done the same, they would have had what they ended up with in less than one week. I love real estate and the science behind it that takes years to learn. It is a pleasure to apply that marketing science when the result is that I have been able to help somebody sell their house and complete their marketing desire. If you know somebody who would like help selling their property, please tell them about me. I will give them the best of all I have learned over the years.
