So Why Hasn't My Home Sold?
So, about 120 days ago you signed a listing agreement and now you are sitting here wondering why your house hasn't sold yet.
It could be for any number of reasons your home hasn't sold but most likely it can be attributed to just plain bad choices on part of the seller.
Let's examine some of the reasons why your home hasn't sold yet that may not be so obvious to the general public.
1) Agents and Brokerage policies are steering your potential buyers away from your home. I know this sounds absurd but in fact it is actually happening in today’s market with frequency. Let me tell you how this is happening.
Let’s say you have negotiated a great discount with the Agent and Brokerage for the commission they want to charge you to sell your home. Usually you will often see that the charge to sell your home is 6%. You in fact know that everything is discounted in today’s market place besides real estate commissions. So why should you not ask for a lower commission to sell your home?
The most likely result of a negotiated 6% commission to sell your home is a reduced commission to 5% to sell your home. You have now saved a whopping 1% off of a 6% commission fee. That’s a 17% commission savings to you. Lets take a closer look at what you are anticipating saving.
For Sale Price of your home: $800,000 X 6% = $48,000 in commissions
For Sale Price of your home: $800,000 X 5% = $40,000 in commissions
Savings at 5% vs. 6% = $8,000
Most likely you are unaware that there is a major brokerage here that will simply not sell your home for anything less than 6%. This is a policy for this brokerage and this brokerage has told it’s agents they will not allow a discounted commission below 6%. What is the result of this policy for the seller who decides to go with a 5% listing? Well now you’ve just taken all of this brokerage’s agents out the job of selling your home. No big deal you say? Think again. These same agents and brokerage will not bring you their buyers because they are going to tell your listing agent when they call for an appointment to see your home or when they call your agent to discuss a possible offer that they will not bring the buyers to your home or bring you an offer unless the agent you hired to sell your home agrees to up the commission paid to their brokerage. What is the result? The agent you hired has to cough up another .5% commission in order to secure you an offer from this brokerage. Who pays for this additional .5% commission when you are selling your home for a total of 5% commission and the resulting “Cooperating Brokerage” (Buyers Brokerage) is half of your 5% listing agreement or 2.5%?
Usually it will be your agent. The selling agent you hired is expecting to receive usually 50% as their share of the standard brokerage’s commission of 2.5% but now they are only going to get 50% of 2% if they have to cough up another .5% in commission. That’s a -20% decrease in their pay for all the services they are going to provide you. Not a happy agent? You bet. Is this a negative in motivation to sell your home? You bet.
Is this reduced commission always going to be paid by the agent you hired? No. Another way around this reduced commission for the brokerage who refuses to work for less than their full 3% Cooperating Brokers commission is to bring you a close to full price offer and agree to the 2.5% Cooperating Brokerage Commission. But upon closer inspection of the offer you see written into the terms that you are (Mr. Seller) to provide the buyers bringing the offer a monetary credit at closing. Why? Most likely the buyer’s agent from this 'No Discount' brokerage has a signed agreement with their buyer that the buyer will pay to the buyer’s agent another .5% in commission when they close from the credit received from the seller on the sale of your home. So now this buyer’s agent and buyers brokerage gets what they want in the end resulting in a full commission on their part of 3% Cooperating Brokers Commission. Now who pays for it? You do Mr. Seller. You pay for this disguised increase in commission through the form of the buyer credit on your offer. Now let’s revisit those numbers.
For Sale Price of your Home: $800,000 X 5% = $40,000 + .5% Credit = $44,000
What have you saved now? The answer is maybe $4,000 in total commissions to sell your home. But wait lets look at this again in the way this is most likely going to happen in this scenario.
For Sale Price of your Home: $800,000
Offering Price of your offer: $765,000
Commission to sell your home at 5.5% $42,075
________
Gross Profit before additional closing costs: $722,925
Now, if you didn’t have to deal with this specific brokerage?
For Sale Price of your Home: $800,000
Offering Price from your buyer: $765,000
Commission to sell your home at 5.% $38,250
________
Gross Profit before additional closing costs: $726,750
2) So now you’ve decided that you will not deal with this brokerage and truly want to stick to your 5% commission to sell your property. Remember you now have chosen to not work with a very large % of agents out there who have chosen not to work for less.
The result of this decision will now affect your bottom line in ways you have not imagined.
Let’s take a look at the market conditions as they stand right now.
We are in a declining sales market and I am predicting it is only going to get deeper into decline throughout 2009 – 2010.
Although the Median Sold Prices for both Oahu Single Family Homes and Condos have not declined overall this year it is my belief that this is not going to be the case in the coming two years. Let me also note here that I don’t believe in "Median" anything. I think the more accurate measures are Averages. If the Honolulu Board of Realtors dealt in Averages instead of Median data I very much believe we would see a clear decline in Average Sold Prices for home sales this year.
What is my point? My point is as a seller you have to realize that we are in a declining market and will be for some time to come and if you had Averages instead of Medians you would be better informed. Let’s look at the scenario again in selling your home in this market after leaving out all those ‘other’ agents who work for that one brokerage who will not work for less.
You’re for sale price is $800,000 and you have been on the market for exactly the average Days On Market time for your Neighborhood of 111 days. That is 3 months and 21 days.
For argument’s sake let’s say the Average Sold Price is declining to the tune of -8% for the year. This means we are looking at an average sold price decline of .7%/month.
In this declining market we see data like the following:
Other examples follow from other neighborhoods just to expand on the importance of knowing what is going on in your neighborhood:
Now let’s say you listed your property on June 12th. 2008 and today is October 1st. 2008 and you now have been on the market for 111 days and have not received even one offer for your home. Let’s also say that the number of showings of your home each week have been steadily declining throughout the 111 day period.
If this is the case then we need to be concerned with: a) the rate of decline of your home value in the present declining market. b) In order to receive an offer you can work with you need to get ahead of the decline and price your home accordingly.
So now it’s October 1st and you have not received an offer and you have not kept up with what is going on in the market in general nor do you know what is happening in your neighborhood. Your home which you put onto the market 111 days ago at $800,000 is now worth about $777,834 as of October 1st and declining steadily by .7% / month. You also have no reason to believe that things are going to get any better as you enter the Holidays. In fact they are only going to get worse as less buyers historically, will purchase during the Holidays.
Now your agent tells you we need to take a look at why you are not receiving any offers. Your agent shows you what the competition looks like. Your home in this scenario is #9 on Pepeekeo Place.
Now let’s look at the Comparative Market Analysis (C.M.A.) based upon the above For Sale competition to your home.
On this C.M.A. your home is still on Pepeekeo Place but on this sheet it’s #10.
Your price /sq. ft. is $503.15 and the Average Price / Sq. Ft. for all of these listings as shown at the bottom of the page is $478.75. Now you know you may be priced too high for the past 111 days because your Average Price / Sq. Ft. is $503.15. What do you do now? Lower the price or take the home off the market? If you are not willing to hold onto this property until approximately 2011 then I as your agent would tell you to lower your price. You agree. But what do we lower the price to? Lower priced / sq. ft. homes than yours run from $397 to $427 / sq. ft.
First off we have might assume that most folks who are going to be interested in your home are in fact in need of a 4 bedroom home and not one with more or less bedrooms than 4. So then your agent shows you a different view of the competition in order to arrive at a more appropriate price.
But first let’s take a closer look at what is going on in the neighborhood…
The pie charts above show what is for sale by price range and what buyers are purchasing and processing into Escrow. Please note the differences between the two pie charts. The most popular price point is $900,000 to $999,999 for this neighborhood. This also shows you that your home price range is not even the current buyer’s choice. However the $700,000 to $799,000 range is and represents 14% of all homes going into Escrow. Now you begin to understand where your price should be.
Other charts just to expand on the suggestion that you must know what is going on in your neighborhood:
Now please note the home search below the complete absence of anything in the $800,000+ range for your home in Hawaii Kai for a 4 bedroom search. Everything for sale like your home is below $800,000.
C.M.A. from the above homes for sale:
Home #1 is at $398.72 / sq. ft. and you are at $503.15 / sq. ft. For our scenario let’s say the amenities are about the same for both homes. In addition to this the prospective buyer also sees that the home in Kalama Valley is 10 years newer than yours, has a larger lot size and is 293 sq. ft. bigger under roof than your home. Although the two homes are in different neighborhoods and both you and your agent feel that Lower Hahaione is a more desirable neighborhood to live in than way back in Kalama Valley the prospective buyer might figure “What the heck, for this much less money and a larger home I can live in Kalama Valley.” So what do you do?
This is where many agents have not learned that in order to properly price a home for sale you not only offer the seller what their “fair market value” for your home is but the agent should propose a selling price for your home in order to sell it against the competition and leave the prospective buyer no reason not to buy your home vs. someone else’s for sale in the same area. Doesn’t this make sense to you? It makes sense to me. After all, you do want to sell your home don’t you?
In this scenario the right price to sell the home is $760,000 because it will eliminate the competition and draw interest, showings and offers for our home.
So here we are in October again and we now are looking at a depreciated price of $777,834 and we also now know that the right price should be $760,000.
Your Home for sale price: $760,000 x 5% (Commission) = $38,000
Gross Profit before additional closing costs: $726,750
Some times you may think you are going to score this great savings of only paying a 5% commission listing but are you really? Another important point is that you really need to understand what is happening in the market and especially in your neighborhood in order to sell your home. You must know your competition and you must sell your home for the right price.
If you had timed the market correctly and brought your home to the market for sale when there was no competition at price / sq. ft. back in June and had agreed to the 6% commission and not cut out all those agents who would not show your home for a reduced commission then perhaps you would have received a great offer and ended up selling for $800,000. In this case the estimated gross profit might have looked like this:
For Sale Price of your home: $800,000 X 6% = $48,000
Gross Profit before additional closing costs for the sale of your home at $800,000 is $752,000 and not $726,750 or -$23,250 less if you had ended up selling at 5% commission at a sales price of $760,000. So…what did you really save with a 5% commission listing? Nothing.
This scenario resulted in far less Gross Profit than I’ll bet you ever would have realized when you signed that 5% commission listing agreement.
3) Other areas you may want to look at in selling your home to insure top $ are:
Proper Internet Exposure with photos like this:
Also for better internet exposure:
This service offers 360 degree views of each room or 360 degree views from outside the home. It also provides the seller with their own webpage and provides the seller with data as to who is looking at the listing, when and how many times they have looked. I believe this service invaluable in maximizing your Internet presence. More than 87% of all buyers shop the internet before contacting an agent to see the property and make an offer.
Internet presence should not like this…
I would like to just say a few words about Median and Average Numbers in terms of how heavily weighted they both are in terms of higher priced inventory miscuing these numbers. This is an existing condition in today’s market. Here are the last pages of a C.M.A. showing differences after you take out the high priced inventory.
Single Family Homes
Before taking out all inventory priced $2 Million+. The Average For Sale Price is $802,269
After taking out all inventory priced $2 Million +. The Average For Sale Price is now $686,784
Condos
Before taking out all inventory priced $1 Million+. The Average For Sale Price is $387,644
After taking out all inventory priced $1 Million+. The Average For Sale Price is $358,396
What a difference that makes when you take out the top priced inventory from the figures to get a better look at the Average For Sale Price.
The same can be done for Average Sold Prices.
Don’t rely on those Median Prices which only confuse the facts even more.
Another View of existing inventory for sale vs. what the buyer is putting into Escrow:
I hope you have enjoyed this article and if you have any questions please feel free to contact me. I have been writing for Oceanic Cable for 3 years and my goal has always been to provide a more complete picture of what is really happening in the Hawaii Real Estate Market.
I began this goal after realizing that the public was not informed of many facts concerning real estate transactions in Hawaii and the proliferation of real estate advertising that appeared to be disguised as feature articles in the newspapers. Some of this advertising appeared to be designed purposely to provide the reader with what the advertiser may have wanted you to know and subsequently left out perhaps what they didn’t want you to know.
I wish you all much Aloha.
Mike Gallagher
Broker in Charge
RE/MAX Honolulu
808-384-9015
Mikeg@hawaii.rr.com
http://www.hawaiirealestatestatistics.com/
