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Pricing a home is both art and science.
Matching the Market:
How do Sellers (and their Agents) know if the list price their Agent’s research and experience suggested is accurate? Remembering that pricing is both art and science, pricing will be verified by the market when the property goes under contract (or “pending”) within the first thirty to forty days after its introduction to the market.
Assuming the property pends in that time today, the Seller and their Agent can be confident that they’ve successfully garnered a fair market for the property.[ii] In stark contrast, Sellers could expect to receive multiple offers in as little as one to three days in 2021 due to low-interest rates and COVID changing how office workers connected with their companies. COVID changed how office workers connected to their teams. The evolution of remote work created a path to early relocation for city dwellers who desired a more “remote” lifestyle. COVID accelerated their housing retirement goals, and active workers were able to move to their dream “retirement” community while still earning corporate-city-worker income.
A distressed Seller, a phrase we haven’t heard in a while, met with me to discuss selling their property. This Seller had leveraged an investment property with a mortgage that had a per-diem acceleration clause triggered by default. When we spoke, the property had a set foreclosure date—[JW7] the sale clock was counting down! In ten days, the per-diem acceleration clause in the Seller’s mortgage triggered, and the Seller would then owe the bank an additional $1,100 per day on top of the current mortgage payoff. $1,100 per day! This was serious stuff.
The owner was emotionally attached to the property and was pinned up against a financial wall, a terrible combination. As Agents, interactions like these are particularly tough. We feel for the Seller and their experience while actively trying to triage the situation. Every day the property didn’t sell was costly to the Seller’s bottom line. Further, as it was an investment property, multiple families could and likely would be affected by a sale or foreclosure[iii].
At the time of this listing appointment, Bozeman’s market was beginning to soften. Interest rates had increased from the unparalleled 3% that fueled the 2020 and 2021 real estate frenzy to nearly 6%, perhaps 7% for investment, notably reducing a potential Buyer’s purchasing power and returning to familiar market expectations. Due to the change in interest rates, listing prices had started to stabilize and reduce just a little. More importantly, sold prices had dropped slightly, with a notable increase in the days on the market before a property cultivated a successful contract. At that time, Sellers’ glory days of multiple offers were waning.
Due to these factors, I recommended a listing price at the top of what I thought the market would tolerate based on the recently sold data. I hoped to promptly procure a Buyer for this Seller (within fifteen to twenty days) while garnering top market dollar for their property. And most importantly, relieving them of this financial noose.
As can happen when interviewing for a listing, this Seller also interviewed a second REALTOR®. The second Agent was willing to work for a lower commission than HōM 406 and was ready to list the house 14% higher than my recommended top price. Looking at the potential bottom line, the Seller understandably elected to hire the second Agent.
The property was listed for thirty days before undertaking a notable price reduction. After seventy days, the Seller did procure a contract, and they raced the foreclosure clock to closing. The seventy days of market time cost the Seller significant per-diem interest. With the price reduction and the per diem cost to the Seller (assuming the property is under contract at the list price), the net income for the sale for the Seller today would likely have been close to my original suggested listing price. I can’t imagine the stress the Seller and Agent felt with the burdens surrounding the timing and bottom line of this property's sale.
This scenario is a difficult challenge for any listing Agent. Does an Agent increase the list price to meet the Seller’s hopes and expectations or advocate for less stress, faster sale, and greater security for the Seller? The key is to educate the Seller and let them decide what is more important to them. As with all real estate transactions, this requires razor-edge integrity to walk this line.
Of course, I would have liked to have been wrong and had the Seller procure a higher list-priced contract right out of the gate. But instead, the property sat for seventy days! The burden of that time on the market fell on the Seller through paying out of pocket the hefty per-diem interest and navigating the emotional strain.
My value of true advocacy sometimes results in a lost listing, but I seek to always act in the best interest of my customer. While it seems counterintuitive to elect not to get paid today, by not buying that listing, I was instead able to sleep at night knowing I focused on this Seller’s best exit strategy and not my bottom line. I didn’t carry the burden and worry for the renters who were going to be affected by either the sale or the foreclosure, and I was able to give my full focus to clients who were ready to lean into my expertise and transact with ease and fun in the market.
When preparing a listing price, we also look at the data of recently sold properties, not the current active listings. We do not consider active properties beyond reviewing them as competition for a future Buyer. Why? Because the market has not consumed active listings, suggesting that the asking price concerning the condition, size, and/or location may not be relevant to the current market.
Hearing your Agent suggest a listing price below what you, the Seller, perceived your home to be worth may be a hard pill to swallow. As counterintuitive as it may seem, dedicated service to our Seller may require adopting hard pricing strategies, an outcome different than what you might have expected at first blush.
Exclusive to HōM 406:
We utilize a Bozeman-focused Home Buyer and Seller Guide, written by Erin, designed to help you and your home-buying partner define the criteria of your next home
together. This interactive workbook is a conversation sparker! With it at the foundation of our collaborations, we expertly guide our clients to their next home, only showing them five to six properties on average.
Are you curious about where your home positions in the
market today and what might be possible for you? Call us, shoot us an email, or send us a text. We will connect with you to discuss your current focus and help you determine if now is the time for you to Sell in our active Bozeman market.
Who knows, your next great home could be on the market today, waiting for you to discover it!
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[i] identify top and bottom sales price based on wear, tear, and general condition.
[ii] Statistics show it is taking forty days for a Bozeman home to procure a contract today.
[iii] Understanding Leases and a Home Sale: Suppose an investment property is sold or foreclosed on, and tenants are in place without long-term leases. In that case, the future owner (bank or investor) has no obligation to continue the current leases, and the tenants could be left scrambling for housing, with only 30 days’ notice of the termination of their current lease.
