Wait a minute. We’ve got the hottest seller’s market anywhere in the country right now – truly epic proportions – and sellers are getting hurt? Can’t be! Actually … it could be.
A recent Denver Post article has us thinking that up to 20% of metro Denver home sellers may be leaving money on the table when they sell their houses.
The article in the Denver Post made this observation, “By some estimates, as many as a fifth of metro Denver home sales may be happening outside the multiple listing service, REColorado, as buyers and their agents hunt down prospective sellers before they list.”
Great strategy, if you are the buyer. Ouch! If you are the seller.
If the Post article is correct, those sellers are probably missing out on 10% to 15% … or even 20% of their equity! On a $250,000 property, the seller may be coming up $25k to $50k short of what he would get for the property if he listed with an agent and put the house on the open market.
Here’s why. Before putting a house on the market, we have to set an asking price for it. We do that based on a methodology used by appraisers and real estate agents called “comparative market analysis”. It’s an educated guess at the market value of a property.
When we do that normal valuation process these days and then put the house in the MLS, we are frequently swamped with tons of showings and multiple offers. The ensuing bidding war is producing some remarkable results.
Representative Examples for CHR Agents:
- * A townhouse priced at $245,000 got 8 offers and sold for $303,000 to a cash buyer.
- * A single family home at $250,000 ended up with 22 offers and a couple of them were a bit north of $280k with buyers willing to pay that even if the house did not appraise for the agreed purchase price.
In other words, the projected market value via normal valuation processes is way below actual market value a seller will experience. You are probably going to get a lot more for your home when it goes on the market than the theoretical analysis is predicting.
To get market value, however, a seller has to expose the property to a wide pool of buyers, not just some random buyer who happens to target the seller for a “private” sale. Wide exposure is a necessary condition for getting top dollar.
Suppose one of those sellers in the example above had not listed his house and was approached by a buyer’s agent to sell it to a particular buyer. This puts all the advantage on the side of the buyer. The buyer knows that other people don’t know that the property is for sale. In addition, the sales price will be negotiated based on that theoretical guess at the property’s value typically used by appraisers and real estate agents instead of the much higher value that would be produced if buyers were competing for the property.
These private, pre-MLS transactions are smokin’ hot deals for the buyer but will typically result in lots of lost revenue for the seller.
At CHR, we look for those private deals when we are representing the buyer. When our client is the seller, however, we educate them about the advantages of staying away from the private deal, unless the seller has some rare and special circumstances that make that necessary.
(c) Mike Cooke