Recently a potential client approached me about selling her teardown house for $3 million in a nice Southern Marin location. Looking at the comparable properties, including a beautifully redone one that sold across the street for $3 million, her perception of value appeared to be way off. I don’t like to be too harsh, but the value of her house was basically non-existent. The lot held all the value, and because construction costs can be so high (approximately $1 million to rebuild) I speculated that her land was worth about $1.5 million. If she was lucky the price could approach $2 million, but any individual owner would want some sweat equity, and any flipper would need enough of a margin to protect their investment and cover cost over runs. To some buyers I’m sure it would be worth even less than $1.5 currently. Supertramp has a song for sellers like this.
A few years ago, another seller approached me about representing him. His price seemed more realistic, in light of the fact that there was a Covid buying spree, fueled by historically low interest rates, sweeping the nation. He was still a solid 20% over the market value, and he ended up not selling the house. The potential client ended up working with three other Realtors in all, and recently came back to me. His expectation of value had come down close to where the market value had been, but unfortunately the value was no longer there. The house wasn’t a tear down, but it needed everything and at least $300,000-400,000. Those kinds of homes are more challenging to sell in today’s market if they aren't priced right, and it goes back to regular home buyers desiring sweat equity opportunities or contractors needing safe resale margins. The seller said he will circle back to me in a few years when the values improve. I’m looking forward to working with this potential client because he seems to have become very realistic about the property.
Most of the time it’s not a good idea to list seller’s homes when you don’t believe the market will support the value the seller has in mind. That is, unless they are willing to adjust the listing price after digesting market feedback in a timely manner. The longer a property sits on the market, in general the lower the market perception of value. I bring up this topic in today’s blog because I toured a house recently that advertised, “First time on the market since the mid-70’s.” While it did not resell in the last half century, in the past 20 years they tried to sell and failed three different times. This latest attempt will likely be number four. I remember the last time the property was on the market, and at the time I thought it was significantly overpriced. It’s the same thing this time around, only the asking price is a couple hundred thousand dollars more. Having never had contact with the seller, I have no idea if they will ever be realistic about the market value for their home.
I’m not saying my valuations are perfect. I have been wrong about market valuations before and I’ll be wrong again. But I do have 20 years of experience selling real estate and a couple hundred home sale notches in my belt. Plus, I have a master degree in business administration and I work for the largest brokerage in the United States. I am the top listing agent in my office. I consider pricing strategies to be one of my strengths, and sometimes it’s okay to start a little high. But if I’m going to work with a seller, we have to at least be on the same pricing planet. Being in the same solar system doesn’t cut it.