Zillow Talk by Spencer Rascoff

Author:Spencer Rascoff
Language: eng
Format: epub
Tags: Business & Economics / Real Estate / Buying & Selling Homes, Social Science / General
Publisher: Grand Central Publishing
Published: 2015-01-26T16:00:00+00:00

PANTS ON FIRE

When public figures are caught fibbing, savvy PR professionals advise that they come clean as soon as possible. Admitting a lie isn’t easy, but it’s better in the end. Otherwise, the cover-up may be worse than the crime.

The same goes with pricing your home for sale. If you overprice, it’s better to admit your mistake and cut the price all the way down to the true market value in one fell swoop. The alternative is “death by a thousand cuts”—price cut after price cut—which only serves to drag out the ordeal and compound the problem. Your home lingers on the market, real estate agents describe the listing with the dreaded adjective “stale,” and buyers smell blood in the water.

That’s what happened to the Careys. And it’s what happened to a lot of sellers in the wake of the housing bubble.

The extent to which sellers overprice their homes depends, in part, on when they purchased it and for how much. Sellers who bought in January 2006 overprice their homes by only 8 percent, while those who bought in January 2009 overprice by 22 percent. In other words, homeowners who purchased in the run-up to the housing bubble seem to be more willing to confront current market realities, whereas sellers who purchased their homes during or after 2009 have trouble coming to terms with the extent to which their investment has been devalued.

As a result, sellers who bought their homes during or after 2009 generally price their homes 10 percent higher than the amount for which they purchased it only one to two years ago. In other words, they’re listing their homes as though they have appreciated in value since 2009, when, in fact, the national real estate market depreciated 10 percent since 2009. That means many of these sellers are overpricing their homes by a significant amount: roughly 20 percent above market value.

And as we’ve discussed, that never ends well.

Suddenly, the Careys’ predicament makes a bit more sense. While the Barkers purchased their home in 2006, before the housing market tanked, the Careys purchased in 2009, after the bubble had burst. The Careys priced their home 25 percent above its actual value because they assumed—wrongly—that they had escaped the worst of the housing crash. In reality, the bubble didn’t pop all at once; it slowly deflated over four and a half years. When the Careys purchased their home for $225,000 in 2009, it was still overvalued. By 2012, their home was only worth $200,000. Not wanting to face facts, they mistakenly, and significantly, overpriced their home.

The data clearly shows that it’s hard for some homeowners to come to grips with their property’s diminished value, especially when faced with the prospect of selling for a loss. But the data also clearly shows that the best course of action for sellers is to price their homes as close to fair market value as possible, in order to avoid price cuts that end up slicing into their profits. That’s the best way to ensure that the price will always be right.

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