This morning I was talking to a seller about listing her home. I got the listing. At first she wanted to list it at the price other houses are overpriced at in the neighborhood. I told her to hold off on talking about price until I could get more information and do an analysis.
I found out she wants to make an upward move to a neighborgood that sells in the range of $300-500. The home she is selling is in a neighborhood where homes sell from $175-300. Comparable homes in her neighborhood are sitting on the market at between $235-250.
I did an anylysis of the neighborhood she wants to move to, where homes that meet her criteria were selling at $325-350,000. I noticed a few that are active had reduced their prices, and I noticed that a couple, sold within the last two monhs, sold for about 5% less than what could be established as fair market value using comps from the last six months.
This whole area has been a hot area for the last 10-15 years, but between 2002-2006 it was overheated.
A stabilization is taking place. It will always be a popular area -- it is an island on the way to the beach surrounded by beautiful rivers. Houses on the river go to 2 to 3 mil. But I digress.
I started clicking away on my calculator, and started thinking; does it matter if she takes less on the sell if she pays less on the buy? First I figured the difference as if the market was still overheated -- say, she gets $250 for her home and has to pay $350 for her new home. That's a hundred thousand dollar difference. But what if she accepts the reality of a stabilizing market and sells for $225 but finds a deal on the buying end for $325, then what has she lost?
What will probably happen is that she will come out better, because the higher end homes are sitting on the market longer and there is better negotiation going on at over $300. I foresee her getting a home that meets most of her criteria at closer to $300. Her monthly payments will be lower at 300 than 350, and her downpayment will be less.
She will still make good on the sell, between what she paid for the home in 2003 and $225. At least 15% a year appreciation. It will sell faster at $225 and she won't get into a bind after months sitting on the market where she panics and takes less than she intended to. There are several reasons why a quick sell will be good, but the main reason is that they need the space.
She will probably stay in the new home longer, because the first home was a starter home and the new home will be more of a family home, so when the market gets stronger it should appreciate strongly over the next ten years. Two years ago, the homes in the neighborhood she wants to move to were appreciating higher than her neighborhood, because it was a more in-demand area. This should be the case in a stonger market, but right now people are antsy over 300.
After showing her my plan with all the projected numbers, and also with the caveat that this isn't science and there are no guarantees, she agreed with my assessment. Now we can reasonably price the home, hopefully sell it quickly and then negotiate like hell on the buying side.