Recent trends in the Massachusetts real estate market have many sellers diving for the panic button and slashing their list prices. While strategic pricing is by far the most significant element of the sales strategy, lowering the price is not, in and of itself, always going to produce overnight results. The sales process is a complex compilation of moving parts. Managing the sales process takes more than hanging up a sign and waiting for an offer. Those days are over.
Whether a seller is going to go it alone or hire a listing agent, the process is essentially the same. It can be broken down as follows:
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Valuation: Determining the List Price
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Marketing Strategy: How to Maximize Interest/Traffic
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Presentation: Getting Buyers to the Front Door is the Easy Part
Valuation: Determining the List Price
Price is the only component of the sales process that can, on its own, make or break the sale of a home. The other factors to be discussed later increase or decrease in significance depending on whether the property is appropriately priced. In other words, if your property is vastly overpriced, it will not matter that the cookies you baked for the open house were legendary. Likewise, if you grossly undervalue your property, it could be on fire and someone might still buy it. Strategic pricing is the key factor in the overall sales process, and there is a right way and a wrong way to approach the pricing of your property.
We'll start with the wrong way, as it is often the most popular route taken by homeowners looking to sell. In our example, a homeowner is looking to sell her condominium and move into a single family house. She has already found the house she wants, and has enough saved for a down payment. Out comes the calculator. She bought the condominium three years ago for $150,000, and her debt on the property is $135,000. While she was living in the condominium, she renovated the kitchen and the bathroom and spent $75,000, so she needs to sell her condominium for at least $225,000 to break even assuming she is not planning on using a listing broker or paying commissions to a buyer's agent. Without paying consideration to the market, comparable sales in her building or in the area or the condition of her property, she lists the property at $250,000 so she will have some room to negotiate and pay for advertising costs.
In this example, an obvious extreme case, our homeowner has backed in to the list price for her property. In reality, what you, as the seller, need to recoup from the sale is NOT RELEVANT. The buyer is not obligated to pay for the costs you incurred in renovating your home. List price can be determined only after an understanding of the following (in no particular order if importance):
Macro Market Conditions (interest rates, national housing price trends, consumer indexes...etc)
- Micro Market Conditions (sales comps, list prices of comparable properties still on the market or under agreement)
- Property Condition (see Presentation section below)
The market conditions (#1-2) and the condition of the property are the only factors that are relevant to the buyer. If the buyer can walk across the street, or in the case of a condominium complex, across the hall, and find a comparable property for 10% less, he will do just that. The onus is on the seller to have researched the market in which she hopes to compete because today's educated buyer will surely have done so.
Now that the seller's perspective has changed from "what do I need to sell my house for in order to be able to pay for ______?" to "what is my house worth?" we can focus our attention on the correct way to value the property.
A good place to start (but not to finish) is with the raw numbers. Historically, the national median single family home sales have increased from year to year at an average rate of 6.34% since 1968[1]. More recently, however, the annual growth rate of 0.9% (as of May 2006 versus May of 2005) is the lowest growth rate in the last 10 years[2]. A savvy seller should understand not only the national trends in sales prices, but more importantly, local trends as well. All licensed agents in Massachusetts have access to market data provided by the MLS Property Information Network. This site, as well as other pay sites including Banker & Tradesman, which is a publication of the Warren Group, offers market data that can be useful in gauging the current status of the market; or, more importantly, the performance of the market since you bought your house. For example, if our buyer from the example above, purchased her condominium in Needham in 2003 for $150,000, she would need to consider the following if she wanted to use median home sales as a frame of reference in her assessment of her home's appreciation:
In at the end of 2003, the median condo price in Needham was $367,000[3] compared to $572,500 as of the end of 2005[4]. That accounts for an appreciation rate of a staggering 56%. Does this mean that she should immediately drop everything put her condo on the market for $234,000 ($150,000 x 1.56)? Not necessarily. First, she needs to consider the rest of the picture. She has owned her condominium during the height of the real estate market in Massachusetts. Had she decided to sell in late 2004 or early 2005, she might have been able to command a higher price (more appreciation) than she can today. Since the height of the market, the overall affordability of housing has begun to decline in 2006 (measured by the National Association of Realtor's Housing Affordability Index.) This is a measurement of the effects of factors such as median home prices, mortgage interest rates and income indexes. Thus, median home sales alone cannot provide enough of a basis to single-handedly dictate our seller's list price. Furthermore, as we determined above in our example of what not to do in determining a list price, buyer's are not obligated to pay a seller what she has calculated to be her appreciation on her home. Understanding the market data is helpful in that it provides sellers (and buyers alike) with a barometer against which to test assumptions. Is it reasonable to consider a list price of $234,000 since properties in the local market have appreciated at that rate in the past 3 years? Perhaps, but the most important numbers to consider are the recent sales figures in her comparable market.
Sales comparables or "sales comps" and market comparables ("market comps") are a realtor's safety net. When two agents get together to negotiate on behalf of their clients, they almost always use comps as ammunition. The goal of the game is to discredit your opponent's comps while establishing yours as the best indicator of the subject property's value. If you are using a listing agent, you should take the time to understand the comps he or she is referencing. Ask your agent to prepare a comparative market analysis (or "CMA[5]") if he or she has not already offered to do so. The CMA prepared by a selling agent is a report similar to one prepared by an appraiser in that it takes multiple properties into consideration, lists each one's attributes and then assigns value to your property based on how it measures up to the competition. Look for similarities and differences between your property and the comparable properties. All of these differences affect the property's value. Drive by the properties that have recently sold and/or, if possible, attend open houses hosted at comparable properties on the market to get a better understanding as to what the buyers are seeing from your competition. On paper, two properties can appear very much similar in terms of square footage, number of bedrooms/bathrooms...etc. Yet, a drive by can reveal that one of the properties is on the corner of a busy street while the other is in a quiet, residential neighborhood. Understanding the sales comps and market comps beyond having reviewed them on paper not only strengthens your understanding of the market, but it also gives you additional ammunition when engaged in the comp war with the buyer or the buyer's agent.
TIP: Even if you are using a listing agent to sell your property, you should access MLS on your own to familiarize yourself with both the sales comps and the market comps. For free access to MLS, visit our website at www.hawthornproperties.com.
Based on the sales activity in your neighborhood, you can get a sense as to the market's opinion of the location. If your condo is in a three family house and units 1 and 2 have recently sold for $195,000, there is a good chance that your market has been set for you, and you will have an uphill battle ahead of you if you decide your unit is worth significantly more than the other two. The truth may be that your unit has been recently renovated and or has more square footage or other amenities and you can certainly account for that in your sales price and in your advertisements. Still, the reality is that the buyers cannot fully appreciate this until they get in the door, and they will likely be skeptical upon arrival because they will know the selling prices of the other two units. In other words, their perception of value has been established by the sales comps and it will be your job, or the job of your broker, to sell the buyer on the additional value in your home.
Keeping with our fictional example, our seller has considered the macro and micro economic data as well as the relevant sales and market comps in her area. In addition, the seller and or her agent have offset her biased perception of her home's value in comparison to the competition by visiting open houses and assigning both positive and negative values to the differences between her property and the other properties on the market. The key is that she arrived at her list price after a thorough and OBJECTIVE analysis of the market conditions affecting her property. It is important to remember that the market dictates your price, and the term market, in this context, refers to the combination of economic factors, your property's specific location and its look and feel (its condition and curb appeal).
Marketing Strategy: How to Maximize Interest/Traffic
MLS
The fastest way to generate interest is simply by listing your property for sale on the Multiple Listing Service ("MLS"). It sounds easy, and it is if you choose to list your property with a broker, like Hawthorn Properties. The first thing the broker does is create a listing on MLS. It provides the maximum exposure to other brokers and agents as well as to buyers who have accessed MLS directly. In addition, once a property is listed on MLS, it is automatically uploaded to additional sites such as http://www.boston.com/, http://www.realtor.com/ and others.
The Listing
However, the listing alone is not enough. It is imperative that you, as a seller, take ownership of the content in your listing. Make sure your agent has the correct and complete information. The more information you can provide your prospective buyers, the better. If a buyer is evaluating multiple properties and your property listing contains a complete set of data including room measurements and updated public record information as well as a set of photos, yours is better positioned than an incomplete or watered down alternative. Buyers need to believe that they are making educated decisions, and an informative, fact based listing is a good way to encourage confidence in a buyer's mind. On the other hand, the listing is not always the best place for a sales pitch. Facts look better on paper than opinions. Save the sales pitch and the catchy phrases for the open house or for showings. The listing format gives you a check box for things like public transportation. The comment section is your opportunity to further describe these features. You should include, in the comment section, any features that complement your home that are not adequately defined by the standard questionnaire such as (but not limited to):
- School district(s)
- Public transportation (name the closest train or bus station so buyers can get a frame of reference or can picture the commute if applicable)
- Nearby amenities (parks, lakes, shopping, places of interest)
- Room features (appliance types, flooring)
- Recent updates or renovations (new roof, central air, new deck or patio)
Avoid using "buzzwords" to the extent possible. Words like "quaint," "charming," "one of a kind", etc. are ambiguous and can mean different things to different people. Instead of using these buzzwords, the use of phrases like: "a five minute walk to the Hersey commuter rail stop" or "9 foot ceilings in the living room" allows the buyer to gather the facts. From there, the buyer can determine whether he or she believes the property is quaint.
Other Listing Services
For those sellers who intend to sell their property without the service of a broker but still wish to obtain the exposure that only MLS can provide, the entry-only option is available. An entry-only listing is where a broker accepts a one-time fee to create a listing for a seller on MLS, but provides no additional services other than fielding phone calls from prospective buyers and directing them to the seller. With an entry-only listing, the seller bears all costs associated with advertising and only uses the broker to update the property listing on MLS as necessary. In addition to MLS, other places to list properties include:
- Craig's List: http://www.craigslist.com/ - Craig's List is an on-line classified ad service where users post ads ranging from real estate for sale to personal ads to employment opportunities. It is widely used in the rental market, but can be a place to find buyers that are not working with a buyer's agent.
- isoldmyhouse.com: http://www.isoldmyhouse.com/ - the premier for sale by owner ("FSBO") website in the country. For a fee, sellers can list their properties in the nation's second largest real estate database (next to MLS) to obtain exposure to a growing consumer base of buyers who choose not to work with a buyer's agent.
Regardless of the database in which you list your property (note that you can elect to use all three of the aforementioned options if you like), you need to pay attention to the advertisement you place. As discussed in the MLS section above, go heavy on facts and light on fluff. All you are trying to do is get people to your front door. Photos are essential. Some buyers will not bother to travel out to see a property if they have not been able to preview it on-line. Do not let your ad become stale. If you put your house on the market in February and all of the exterior pictures were taken the day after a snowstorm, you might consider updating them if the property is still on the market in April when buyers are longing for Spring Fever.
Also, stay on top of your ad. For example, Craig's List is sorted by submission date with the newest ads on top. Which ads do people read first? Not the ones they have to scroll down three screens for. Furthermore, the ads only run for seven days, so continue to repost as often as possible and definitely prior to the weekend so your ad can be as close to the top of the list as possible. Why do you think so many service companies start with the letter "A"? Same logic applies here.
Open Houses
Open houses, when used strategically, can be effective. The best time to host an open house is the first weekend that a property has been on the market. It is new; it is fresh; and it is the best opportunity for a quick sale. That is not to say that a seller is doomed if there is a rare June blizzard on the day of the open house and no one shows up. The opportunity to sell the house is not doomed, but the prospect of selling the house through the open house route is diminished. The reality is that serious buyers make appointments. Casual buyers and "nosy neighbors" attend open houses. Other frequent open house regulars include people looking for renovation ideas, people out for a walk that just happened by, and, as referenced above, sellers looking to scout their competition.
Hosting an open house every week is not necessary. The case to be made, from a seller's perspective, is that an open house every week is essential because prospective buyers begin their individual searches randomly. A couple that was on vacation last week during your open house might be ready to hit the ground running this weekend, but because your broker decided not to host an open house you just missed out on your chance to be on their hit list. While this may have been true, to some degree, in the height of the real estate market in year's past, in this market, buyers are not rushing to submit offers on the first house they see. Missing a week or two from an open house perspective will not translate into missing the boat with a particular buyer. Chances are if your house is one they buyers are interested in, they will make an appointment to see it or attend your next open house. If they do make an offer on another house, it is not because they did not attend your open house; it is because that property was the one that met their needs. In other words, do not put too much emphasis on having open houses. Do not be overly optimistic when you have what appears to be a lot of foot traffic (remember the open house regulars), but at the same time, do not be too discouraged if you have a slow day. Sprinkle open houses in one or two times a month (at most) and make sure to hit weekends preceding or following a holiday and after any changes in price.
Newspaper and Other Print Ads
Other than running an ad in the Sunday paper on the day of your open house, print ads are going by the wayside these days. Print ads are expensive, but, more significantly, they are finite. Once the newspaper is in the recycle bin, so is your ad. The emergence of the internet and public access to MLS has led to a decrease in the effectiveness of print ads. In some cases, particularly with buyers who are looking to move within the same town, ads in regional publications, such as the Needham Times, can be effective. But, from a cost benefit angle, you are better served focusing on the internet and your MLS listing.
In some cases, direct marketing efforts such as posting fliers on campus bulletin boards if you are looking to sell a condo near a college or a university or getting your house on a broker caravan can attract interest. The bottom line is that the more attention you can generate about your listing, within the confines of your marketing budget, the better your chances are to make a sale.
The most effective marketing tool is arguably a professional looking, full color, information-packed handout that you provide all prospective buyers upon their arrival to tour your property. The handout should include a copy of the listing (if on MLS), an area map, pictures of the property (both inside and out) and other facts and information that you want the buyers to take away with them. If your broker does not put something like this together, either insist (subtly or scream at the top of your lungs if you have to) that he or she does or do it yourself.
Presentation: Getting Buyers to the Front Door is the Easy Part
Now that your list price has been strategically established and your public relations team has been promoting your home on all fronts, prospective buyers are lining up at your front door to tour your property. Now that you have their attention, you need to convince them that your home is the one they want.
Clutter vs Crap
It starts and ends with presentation. Your "clutter" is someone else's "crap." Your "dust" is someone else's "dirt." Having a home on the market can be a terrible inconvenience to a household - especially one with children. Children equal mess from the minute they arrive on the scene until they pack their bags and move out on their own. Piles of toys and Dr. Seuss books become piles of clothes and video games and so on. It is a constant struggle to keep a house presentable, but it is a struggle worth undertaking. If your house is neat, de-cluttered and void of as many of its inhabitants as possible, your buyers are free to wander about and picture where their furniture is going to go. You just need to let them explore and ask specific questions about the neighborhood or odd ones about how much sunlight the den gets on Tuesdays. You have already provided the buyer with the facts (via handouts and your information-stuffed listing), so they are not worried about how many amps there are or the age of the roof, they can focus their energy on picturing their lives in your house. If, while in the house, a buyer is consumed with details that should be readily available on paper, it is a misuse of their time. Of course, it is impossible to predict the gamut of inquiries that can come from a person on the verge of making the most expensive purchase of his life, but you can be ahead of the game if your listing and your handouts are effective.
The Sale
There are three types of listing agents, the hard seller, the information booth and the agent that sells properties.
The hard seller is on you the second you pull up to the property. He is practically opening the car door for you with a smile that you could hang curtains on. His sales pitch is informative and rehearsed, not likely in front of a mirror, but you are not the first person to hear it. Generally, he crowds you to the point where you are considering not buying the house out of spite.
The information booth is the polar opposite of the hard seller. The information booth salesperson is the one that only speaks when asked a direct question. She is generally disinterested in you as a buyer and wants you out of there sooner rather than later, oh and she wants you to buy the house, too and is legitimately annoyed if you either question any of the information she has given you or if you appear to be leaning towards not buying the house. The information booth salesperson is working, but she is not enjoying her job.
It will come as no surprise that the third agent, the one that sells properties, is entrenched firmly between these two extremes. This is an agent that understands that selling real estate is no different than selling computers, advice, professional services, plumbing supplies or anything else that people buy. It is about people skills, knowing all there is to know about the goods being sold (as well as similar goods that someone else is selling down the street) and, above all, being able to read the buyer. The second a buyer walks in the door, a strong salesperson is sizing him up. Some buyers, especially in a buyer's market, need to move at their own pace. They need to take in the information and process it so that they can make educated decisions. Others walk in and expect to be given the grand tour as if they are visiting dignitaries. It is read and react for the seller or the seller's agent. Does this buyer need to be escorted through the house and have things pointed out to him at every turn, or does he want to dictate the flow and attack with questions at his leisure. What is the buyer's agent like (if there is one)? Is she aggressive? Does she like the house? A seller's challenge quadruples when it is apparent that the buyer's agent is not positively engaged. The strong salesperson makes sure that the buyers do not leave without having been subjected to the best aspects of the house from both a visual and informational standpoint. If they have not seen the new bathroom in the finished basement, point it out suggestively that it came out great and they should go down and check it out. If they did not ask about the school system, make a comment about it, but in a way that isn't ramming it down their throats. It is the goal of the seller or the seller's agent to know the right pitch for the right buyer, but always to maximize the buyer's exposure to the positive aspects of the property.
As with everything else in the real estate game, there is no single right answer or technique, just a lot of wrong ones. Selling your house is a process. Attention needs to be paid at every stop along the path. Failure to spend the time and or money on the key elements as discussed above will contribute directly to a longer sales cycle and a smaller return.
Questions or comments about this article? Contact the author - Ryan McDonnell at (617) 212-2488 or email to rmcdonnell@p-properties.com
[1] Source: National Association of Realtors
[2] Source: Economic and Market Watch Report Q2 2006
[3] Source, : The Warren Group
[4] Source: The Warren Group
[5] for a free CMA, log-on to Hawthorn Properties' Market Analysis page