Dear Monty column: Does extended market time reduce a home's value?
Columns share an author’s personal perspective.
Reader Question: We have a real estate agent telling us not to list our home for more than 10% above her recommended price. She claims that if we do, it will ultimately cause us to accept an offer that is lower than any offer we would get if we listed at her suggested price. She reasons that extended market time reduces a home's value. According to her, prospects start to wonder why no one has bought the house after six months or a year and discount the price because they fear "something" must be wrong. She argues that we will get more by starting for less. We think her approach denies us the chance to maximize our value. What do you think?
Monty's Answer: Some homebuyers can jump to the same conclusion as your agent. She may have come to believe it by hearing it often enough to accept it. In my opinion, the idea is based upon a lack of experience and knowing the facts. Her advice does not allow you the chance to maximize your equity.
The art and process of determining fair market value
Real estate agents know that pricing a home is a tricky proposition. Agents have different tools and approaches to aid them in developing an accurate value. Tools like appraisals, Online estimates, computer applications and others. These aids can help, but none offer a guarantee.
Both parties must agree on the price. Fair market value assumes both buyer and seller are fully informed and not acting under duress, but this is often not the case. This side is the art because both the buyer and the seller are unpredictable.
The marketplace provides feedback used to adjust the price or some condition to reflect market reality more accurately. The process of changing prices or conditions to reflect the marketplace's reality takes place over time until parties reach an agreement on the value and a sale. When they agree, the determination of the value process is now complete.
What we have learned
1. The process is a critical element in effectively determining value.
2. Do not overemphasize or value any particular method.
3. Overly restrictive pricing guidelines will not effectively allow the process to determine fair market value.
4. Understand that the justifiable range of value for many properties can vary by more than 10%.
5. Valuation tools are often unable to effectively value common issues such as busy streets, great views, ground pools, unusual floor plans and more.
Understand the listing agent is working on a "success only" fee. There is a tendency in this environment for some agents to overlook or minimize the importance of the process. Here is a Dear Monty article at bit.ly/2I2K9if. It describes the analysis supporting the notion that you should not be limited out of the gate. Some homes take longer to find the market than others.
Richard Montgomery is the author of "House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home." He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com