Over-value your property and the buyers will be laughing last
Recently I began working with a client who was a first time home buyer looking to purchase her first home in Baltimore City. My client had quirky tastes which were different than what the typical home buyer is looking for in a property. Rather than hoping for stainless steel appliances, granite counters and bamboo floors, my client was more interested in shag carpeting, paneled walls and flowery wallpaper. Her ideal home was a single family home that had withstood the last forty years without any upgrades and would feel like a snapshot of the 1970’s.
Finding this type of property in Baltimore City is more difficult than you might think. During the housing boom in the early 2000’s, a great number of Baltimore City homes were bought by investors or speculators, gutted and renovated with all of the newer luxuries mentioned above.
Those properties that were still available that had not been renovated since the 1970’s were typically not well maintained during that time as well. Since my client was looking for a move-in ready home, we had to cross properties off her list that were in need of physical repairs. Most of these properties, for instance, had roof issues, water in the basement, rotting porches and other issues caused by decades of deferred maintenance.
After touring a half dozen or so homes, my first time home buyer client and I toured a 1920’s bungalow in Lauraville, an up and coming, trendy neighborhood in Baltimore City. The home was a detached home on a large fenced-in corner lot that was perfect for my client’s dogs. The lot was filled with tall, full trees which offered privacy and comfort within the city limits.
After walking into the house, we knew immediately this was the home for my client. She instantly fell in love with the feel of the home as we walked on the green shag carpeting in the living room. She envisioned cooking meals using the 1970’s stove. In the basement, she was amazed by the 1970’s sound system and old projection system that was still operable after so many years.
Needless to say, by the time we left the house, my client was anxious to write an offer. The house had been on the market approximately 3 weeks and was listed at $165,000. After comparing recent sales in the area we felt a fair sales price would be $160,000 if the seller were willing to pay a portion of my client’s closing costs, which has been customary in the last few years. After discussing the numbers and strategy, my client decided to write an offer for $155,000 to leave a bit of negotiating room with the seller.
I called the listing agent and informed her I would be sending an offer. She said she would keep an eye out for it. Two full days went by and my calls and emails were not returned by the agent. Eventually she did call, only to inform me that her client was not interested in presenting a counter-offer.
She explained that she and her client felt the house was worth much more than the listing price and they believed the listing price should be a starting point for negotiations.
As a side note, listing a property for much less than the true value can actually be a very effective tool for getting the most money for your home. The idea is to draw in so much interest that you receive multiple offers and can then have multiple buyers bidding against each other to reach a higher price. However, for this strategy to work, the buyers have to make their offers at the same time and typically you should expect this bidding war within the first week of the low price listing. In this instance, there were no other offers and the home had already been listed for nearly a month.
After discussing the seller’s response and looking again at the comparable properties in the area, my client rightfully decided to move on from this property and the irrational owner.
Though disappointed, my client was resilient and we began touring homes the following weekend. After seeing another dozen or so homes, she came across a townhome in Hampden, another Baltimore city neighborhood, that she loved. We wrote an offer on that property, and thirty days later she was moving in.
I kept an eye on the original 1970’s house that my client had been on. The listing price remained unchanged for nearly 5 months. After that, the seller began a series of price reductions. Each month thereafter the seller reduced the price of the home by $10,000. Currently it is still on the market for $130,000.
The lesson here, of course, is that in a buyer’s market sellers should be willing to negotiate and compromise with any potential buyer who shows interest in their home. A seller’s real estate agent should be providing up to date, accurate information and realistic expectations. I could tell by my conversations with the seller’s agent that she had been giving her client bad advice and her aggressive and unrealistic approach has cost her client at least $25,000.