It's no secret that real estate prices have softened. The winds of change that have been blowing on the mainland have arrived. And your home is still on the market.
The facts are daunting. Here are a few:
The Hawaii real estate cycle is past its peak, and prices are expected to soften further
Mortgages are harder to get for buyers with less than ideal financial profiles
Investors are anxious about capital gains hikes & future economic woes
The market news has been in-your-face. Sales numbers are down. As of mid-2008, the number of single family home sales has dropped 26% on Oahu, 27% on Maui, and 31% on the Big Island compared to the first half of 2007.* Naturally, the inventory of homes to purchase has gone up while median home prices have dropped a little or a lot, depending on your neighborhood.
So, why is your property still unsold?
1. It's The Price: The features of your home, its curb appeal, and the effort you go to make your home look like a model are the bait to bring in interested buyers. But above everything else, price is the single most important factor you can control for a successful outcome.
2. You Are Biased! It is human nature to believe that your home is worth more than the others. After all, you selected it for some very good reasons. Sellers are emotionally involved in their homes and not likely to be an objective judge of its value. They do not see the flaws and frequently place too much value in minor or unique improvements - like the fresh bright yellow paint in the kitchen or the Gothic chandelier. There is also a tendency not to see where improvements and updating are needed.
But what determines the value? It's the market, and the market is controlled, now like always, by what a buyer is willing to pay - and can get a mortgage to purchase.
3. You Are Confused About Value. Here is a primer:
Fair Market Value: This is the price your home is likely to sell for. Fair market value reflects the price a property will bring if it has been adequately exposed to the market, assuming a qualified buyer and motivated seller, without undue pressure or desperation from either side. Under these conditions, market factors of supply and demand will determine the price the buyer is willing to pay and the seller willing to accept. If hundreds of buyers have seen a property on the internet and in person, and no one can come to terms with the seller on price, it is clearly priced above fair market value.
Fair market Value is what your home will sell for, and should not to be confused with any of the following:
Appraised value is just for the bank. It's what a licensed real property appraiser has calculated your home to be worth for a particular purpose, and used to decide if they will give the buyer a loan. It will sabotage your sale if it's not as high as the price a buyer has offered to pay.
Assessed value is for property tax calculations only, and it often varies by 20% from the market value, since it lags behind at least a year.
Investment value is generally based on cash flow of the property, and uses the "cap rate" to calculate value. This method is commonly used for commercial property or apartment buildings.
Comparative Market Analysis (CMA) is anything from a simple list of properties to a detailed analysis of value. It could be way off if there are no similar sales of homes nearby with similar features, or it was not carefully done. If you are hiring the services of a Realtor, you have a professional who should be able to give you a detailed analysis of the neighborhood sales and listings, and suggest a listing price range. It is a tool to target your likely fair market value range, not an exact price.
Realtors use Comps or Comparable Sales to price homes. These are the homes that have actually sold. You need to know what homes like yours have sold for - in your neighborhood - during the last 3- 6 months, and what is now available now, or "the competition". Location is everything, so be sure that the homes compared to yours are similar ones located nearby.
4. You Misunderstand Value Factors. It's really quite simple:
These Effect Value:
The competition -other homes for sale
Comparable sold properties
The condition of your home
The urgency of your sale
Availability and cost of financing
Your original purchase cost
What you spent for improvements
Assessed tax value
How much you need to get out of it
Your mortgage balance
Asking price of other homes
Your lucky number or horoscope
5. Your Home Needs Work: Very few buyers really want to renovate unless they are buying at a bargain price. For the top price, the main systems of your home should be in good condition and up-to-date: roof, foundation, plumbing, electrical, and drainage are the biggies. Other features such as curb appeal, view, accessibility, parking, floor plan, outdoor space, and finishes such as flooring, cabinets, and counters are also important but won't make up for poor maintenance. Buyers will always overcompensate for needed updating and repairs in their offer price.
6. You are impatient. It takes longer to sell now, so allow sufficient time for a sale. Don't expect a top Realtor to take a three month listing. It just isn't enough time to get a marketing program going, wide exposure, offers, and escrow closed. Allow at least 6 months total from start to finish, longer if you start out with a too-high price.
7. You Didn't Hire a Pro. If you select a Realtor based on the lowest fees, you will get what you pay for. There are many discount options available for sellers, so if you go that route, be sure you understand what you are getting - and not getting - for the price. Unless your Realtor cares about your goal in selling, they are not going to take the time (and money) to market and negotiate for your best results. A complete marketing effort requires excellent photos, internet exposure in several sites, advertising, quick access to the property for showings, and complete, accurate property information. This takes time, money, and attention to detail.
Want a Neiman Marcus results? Or even just a bit of customer service? You won't find it at Wal-Mart. Assembly-line real estate may not bring you the bottom line that you want even with those lower fees. And don't forget that there are generally two Realtors involved, yours and the buyer's. In spite of popular opinion, most Realtors work hard and have many business expenses, so be sure your listing agent is offering an attractive commission to the buyer's agent. For a fast sale in a soft market, you can even sweeten the pot by offering a bonus to that agent. If you need a fast sale, this technique can increase the number of showings you get while a substandard commission may put your property at the bottom of the list to show.
At the same time, don't get swept away by the agent who says they can get the highest price for your home. This could be a sales tactic to get your signature on the listing. Unless they are buying it themselves, they will be subject to the same market forces that are giving buyers the power now.
8. You Lack a Clearly Defined Goal If you have not established a clear and realistic goal in selling your home, you are not a motivated seller. Don't even bother to put it on the market. For example, if you need to sell because you are relocating or retiring, but you won't accept the market value for your home, you are in denial. If you get 3 offers and none of them are willing to negotiate to your expectations, you price is probably unrealistic. Ask yourself, what will you do if you can't sell for what you think you should be able to get? If you are not willing or able to accept the market value, you need to have a viable Plan B. Whether it is to refinance, rent out the property, or put your moving plans on hold, you need another option. Prepare to bring money to the table if you have no other way to sell, or discuss your options with your lender if you are falling behind on your payments. Denial is not your friend.
Get Used to It. The market won't turn around this year. If you need to sell, now could be your best time. No market goes up forever, so this is a part of the natural cycle of supply and demand. Don't wait for an unknown future market unless you can hold on for 5+ years, the minimum it has taken past cycles to swing back the other way. The past "good market" for sellers has been devastating for most buyers, so try to understand that this change is an essential part of the economic cycles. You can and will survive it if you make smart choices.Your best decision about selling will be made by consulting with the best professionals with lots of planning and preparation. Don't rely on chance with your most valuable asset!
More Pricing Observations. If you decide to list your home at a higher price "just to see what will happen", it's really quite predictable. You will delay the sale, discourage serious buyers, and lose the momentum of being a new listing. The most interest in your home will be in the first two weeks. After that, many buyers look only at the new listings so you may lose the opportunity to sell. Worse yet, you could end up "chasing the market" as you adjust your price and try to find out the real number. Or your property could be shown just to sell another better-priced one. Experienced Realtors do not want to waste their time, money or reputation on overpriced listings, but the big loser will be the seller. Buyers want a good value now more than ever, or they will go elsewhere.
Not a Science. If you ask several Realtors or appraisers, you will get different opinions of the value of your home. Pricing is not an exact science! Price per square foot is useful for condominiums, but less so for single family homes. In older Island neighborhoods the value your land is probably greater than the value of the house. So if your home is larger but the lot is smaller, you may get less for it. Buyers can in fact be swayed by cosmetic appearances and the furnishings and décor which create an attractive image. Most make a judgment about a home within the first 30 seconds so make sure your home's charms are not hidden. And a charming price will make up for just about anything else!
Memories are short. Did anyone really think that the upward-spiraling prices would continue that trend forever? In past cycles Hawaii real estate had very resilient value, not subject to the huge price drops of certain other areas. Our land is limited, zoning very restrictive, and real estate has always been an excellent investment over the long term. That won't change.
*per Honolulu Board of Realtors and Hawaii Information Service, compiled from MLS data eff. 7/1/08.
As always, I welcome your comments below however if you have a question or inquiry, please email me directly to firstname.lastname@example.org . Mahalo!
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Great and insightful article on Hawaii real estate. I will recommmend it to everyone I know that might be selling soon!
Very well-written. I'm a California Realtor, and the ideas presented here are universally true. A true professional Realtor will have the guts to tell you the TRUTH about why your home isn't selling...and it always boils down to the "P-Word": Price.
Thanks for a great article.