If you’re one of the sellers in today crazy Salt Lake County real estate markets you may be frustrated because your home is not selling. This is especially true if you are not selling as a short sale. I’m not going to explain all the rules of selling and the situations that have caused this: just most important ones in this and my next post on pricing. The first post will look at the state of affairs in selling your home in Salt Lake and how to do a CMA based on the sold homes. The 2nd post will be the Market pricing Analysis Study on what it takes and why, to sell a home in the Salt Lake market.

You have heard the 3 rules of selling a home, Location Condition and Price. Let’s face it in today’s market is dominated by Short Sales and Bank Owner property it’s all about the price. Buyers are at foreclosure frenzy, crazy with getting a great price. I’m a nice guy but I’m not going to help you pick up and move your home to a better location. Try as you might to update your home the best you’ll get out of the updates is 50 cents on the dollar. So why throw away more money on a home that is not selling. If it were about quality new homes would be selling at top $ not 30% + off that. No I’m going to educate you about, the state of affairs in lending and qualifying buyers, how average income of home buyers affects the sweet spot of price point, absorption rate, Buyers in the market, price point, and buyer mentality.

In any market it’s about price. This is not totally based on the sold price of comps in your neighborhood. It’s about the way your home stacks up against the other active listed homes. This stacking up is based on the realization of x home a month like mine will sell. X # of buyers will look at the best 20 or so homes. My home has to be a one of the best bang for the buck homes or it won’t make the list of home to be viewed. If not on the list my home will not sell. The bottom line is home priced well sell and homes that aren’t don’t. The golden Rule.

Let’s talk first about the 3 types of seller:

1. Those that wish they would sell. They are the one that say I’ll put my home on the market high if it sells great but I don’t have to sell. In a decreasing market this is silly and a waste of time and resources for all involved. Buyers will use this as a value marker. They compare it to the low priced home they want to buy to say if I do x my home will be worth that amount.
2. Those that need to sell they are in a short sale or are relocation, or people that need a bigger home because of combining families. Very popular now in this economy. They try but many are listed too high because they haven’t looked at the market and been realistic. They are usually chasing a market not willing to do what it takes to sell.
3. Those that must sell. These are inventor on the books homes. Builders or mostly bank owned property they are a liability and if not priced right will cost more money over time. They will be systematically reduced like a clearance item until they sell. Most in a decreasing market are priced just like I will tell you to price, but the bank put them at 5% below the market to get offers. The banks want multiple offers the first week to get buyers to offer their highest and best offer. That competition will get a higher $ figure then starting high and moving lower. If they don’t get an offer at list price they reduced the price every 20 days 5% or so to get it sold.

This is completed as if you’re a seller not in foreclosure or short sale, YET! You have equity and you want to sell. We’ll in reality you have no equity in a home until you sell it, that is also a myth. Deciding on a sales price for your home is actually like complex mathematics. I sometimes feel like Russell Crow in A Beautiful Mind writing long formulas on the windows. In the end it is simple and beautiful but not always easy for the home owner. First off let’s get rid of the urban myth that you can’t use a distressed sales of bank owned or short sales as comparable home or comps for retail sellers or better worded “your sale”. That is just plain misinformation being spread by Realtors! If you hear “You have to use a like comparable retail seller to retail seller” ask them to leave or at least put away the script. This is utter Poppycock! This is the biggest mistake Realtors make in pricing a home with a comparative market analysis or CMA. Actually the 2nd biggest because the first is pricing a home off sold comparables; we’ll get to that. You use the homes that are selling now, most like your home in style, closest to your home in proximity, nearest in time period that is the best comp. That’s what buyers are willing to pay for a home; so that is your market. Your market is your market because, that is what is selling. There aren’t 2 markets for Retail Sellers and for all the rest. Wake up sleeping beauty; your market is your market because, that is what is selling. Say it with me one time, “Your market is your market because, that is what is selling.” This wisdom came straight from a very experienced “Yoda like” appraiser. That is how your home will be appraised and that is what you will have to live with when it goes under contract, and is appraised.

When you look at the value of your home, you use the most like and closest in proximity, most recent in time, sales as comps for your home! You do not use the highest price sold in 10 blocks, no matter when, within 6 months, those days are gone and they aren’t coming back anytime soon. Let me explain the process. First we’ll look at the home as an appraiser would. You get all the sold comp like your home in the last 90 you can move up to 160 days if you don’t have 4 like your home in style year built + - 5 years and within 20 %+= - of your sqft. You put that on a spreadsheet for each comp and create a column for list price, sold price, sales concession paid by the seller, Net sales price subtracting the concessions, square Foot, net sold price per sqft, list to sold price % (You’ll need that average later). You do this for sold similar style home. In a decreasing market you weigh the Sold CMA on property sold in the last 60 days no matter what they sold for, or who sold them. You calculate the sold price per sqft you can even do that for finished price per sqft. Remember they are similar comps style average to average condition. You now have a CMA and a spread sheet that is your Sold or Appraisal CMA. So you know approximately what it will appraise for but that tells you very little about where you need to be priced to get serious buyers interested in your salt lake home for sale!

Lastly let’s talk about the price point of the home and how that affects the amount of buyers. Because real estate has seen a perfect storm over the last 2 years. Lending being turned upside down with an outcome of few people can now qualify for homes. Pricing drove through the roof by investor buying. The lending industry allow state income loans, builders and home seller could sell their over median income qualifying home, easily to almost anyone with no money down on a 100% stated income loan. Literally anyone could buy and home with no money down. Now all loans are fully qualifying with verified income. So if you’re self employed and your taxes show you make $46,000 (Average income in Salt Lake County) a year. You qualify for a home with $3,833 monthly income at 36% DTI or a full home payment of $1,379 and other debts of $300 a month. That scenario would allow them to qualify for $205,000 home at a Housing DTI Ration of 37% and a total DTI of 44%. These are over the standard limit but would probably get approved with automatic underwriting and a 680 credit score. So the median income in the city qualifies for $205,000 but the medium home price is $236,000. See the problem? Now what would it take income wise to qualify for a $400,000 home. You would need a house hold income of $7,313 or $87,757 a year. So you can see what the problem are, we just doing have the # of qualified buyers in that market for the # of home owners needing to sell.

Most of them are over their head and the home is in foreclosure. If we see inflation and rates go up that will have a dramatic effect on what people can qualify for and how many families can’t afford their current monthly house payment. Most of the 100% stated loans were 3 to 5 year fixed and then adjustable loans. I have one of them that just because an adjustable. Since the fed has the Treasury Bill artificially at an artificially low rate, it ok for now. If we have inflation or more accurately when, the adjustable rate payment could see a house payments over $400,000 jump by $1000 a month. All we would have to have is 2006 rates of 7.8%. With higher interest rates fewer buyers will qualify and less will be in the market and we’ll see the home value home continue to drop. What do you do if your payment is $500 more than you can pay and your home is worth ½ what you owe? Unless they reduce the principal of your loan on a loan modification; it doesn’t make sense to put your family in that financial situation for many years! Most lender are not reducing the amount owned just forbearing the interest on a portion for 10 years. We’ll in 10 years you still have a similar problem. If you do a short sale you qualify for an FHA in 1 year and that is what we are seeing. That is the why so many homes for sale in the salt lake market just aren’t selling. It is because of the perfect storm has come together to put less buyers in the market then homes available. My next post tomorrow will be all about how to evaluate the market and price you home so that it sells for the top dollar in your market. It will be Titles “How to price and sell your Salt Lake Home for top dollar!”

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