With the post-Labor Day listing surge days away and the local real estate market spinning out of control, the feeding frenzy will once again fly into full swing. And while there are thousands of buyers hovering and an abundance of sellers, overpricing houses could be a big mistake.
With data below in the “Sale of the Week” section to support this theory, sellers need to be aware that overpricing their homes can open cans of worms that would be better left sealed. Worms and real estate don’t mix.
A house remaining on the market for more than two weeks in this market is the equivalent of two months in past real estate markets.
Once the house reaches a week, it might become subject to appraisal, inspection and financing contingencies. These contingencies are obsolete when a property receives multiple offers on the first day it is listed. Overpricing can cost the sellers tens or hundreds of thousands of dollars.
Buyers today will pay more for a house than it is worth. It happens hundreds of times each day across the area. Many of them write “cash” offers, meaning that the offer is not contingent on a loan, yet many obtain loans as money is so cheap with interest rates often running under 3%.
During the process of obtaining these loans, appraisals are required, and the seller must allow the appraisers into their homes.
This process is often confusing to sellers who have been told that they have a cash deal only to find the person is getting a loan. It does not matter if the buyers are securing financing, nor does the fact that the appraisal comes in lower than the sales price. The sellers are covered, and the buyers must close.
If, however, the house remains on the market for an extended period – the aforementioned week or two – the sellers forfeit their safety nets.
Let the seller beware. If the contract includes an appraisal contingency, and the house does not appraise for sales price, the buyer may:
1. Terminate the contract
2. Demand the seller sell for the appraised value
3. Negotiate a new sales price.
Buyers often choose to terminate. The purchase was an emotional decision, and they often feel they paid too much. The low appraisal only validates those concerns. Buyers are angry with their Realtors for allowing them to pay too much, so they fire them, terminate the contract, find another Realtor and another house.
On other occasions, they agree to purchase the house, but only if the seller will sell it for the appraised value, as no one wants to pay too much for a house. They already feel abused in this market, and they are not going to budge.
The seller must then decide if they think the appraisal is legitimate. If it is, they may accept the lower price fearing that another appraiser down the road might deliver the same number.
If emotions can subside – and the Realtors and buyers and seller are able to work together – Option 3 could come into play. Obviously, the buyers like the house and have spent some time and money in the process, as the inspection is complete by this time.
The parties can often determine a reasonable price that is acceptable to all and go to the closing table.
Sale of the Week
The mother/daughter team of Anne Zadick and Catherine Zadick, Parks people both, recently listed the house at 1801 Cromwell Drive for $1.35 million and sold it for $1.15 million. Mark Merryman of Partners Real Estate, LLC represented the buyer and partnered with them on the transaction.
1801 Cromwell Drive
With four bedrooms, three full bathrooms and one half bathroom spread across the 3,056 square feet, the house sold for $376 per square foot. Set on 2.56 acres, the Zadick duo noted that the entire home has been renovated with new thermal double-paned windows, hardwood floors throughout and high-end appliances.
This home joins four other upper-end homes – the other three were more than $2 million – that did not sell for more than list price. High-end houses all over town are now selling for less than list.
As a matter of fact, every house sale of $1 million-plus in ZIP code – postal code for the youngsters – 37215 sold for less than list, including homes at Old Club Court, Wallace Lane and Stanford Drive.
Does that mean that the frenzy has calmed, the bubble burst? It would be premature to jump to that conclusion with a Summit Ridge condo selling for $10,000 more than its $265,000 list price, a Burton Hills condo selling for $12,000 more and another in the Burton Hills development, this one on Belair, selling for $412,500 after being listed at $365,000.
A house on Amanda Drive near Hillsboro High School sold for $175,000 more than its list price of $1.325 million.
Lucy Smith listed an Annandale house for $999,900 that closed for $1.3 million. In 37215, an area that covers Green Hills, there were 20 sales with 12 going for more than list price, six going for less and two selling for the listed price.
The market remains hot, but not for overpriced homes.
Richard Courtney is a licensed real estate broker with Fridrich and Clark Realty, LLC and can be reached at [email protected].