Home sellers take note: Buyers are gaining more leverage.
In many real estate markets during the last three years, sellers have wielded more power than buyers. That’s still the case, but now buyers are choosier, homes are staying on the market longer, and prices aren’t rising as quickly as they once did.
“It’s a seller’s market transitioning to a buyer’s market,” says David Lereah, chief economist for the National Association of Realtors. Sellers are reluctant to drop their asking prices, but a lot of them might have to “because the buyers now have a little more control, a little more power.”
5 tips for selling
Here are tips for the homeowner who is selling in a market where buyers are gaining clout:
- Prepare yourself mentally for what you’re about to go through.
- Get ready for picky buyers.
- Educate yourself about your neighborhood’s real estate market.
- Hire an inspector.
- Consider paying the buyer’s discount points.
Accept that the market will set the sale terms. Don’t take it personally if you don’t get the price you expected.
“The big thing is you’ve got to accept what the market is, and make the most of it,” says Jeff Lyons, general manager of RealEstate.com. “It doesn’t have anything to do with you personally; it has to do with the market.”
He advises sellers not to expect an extension of the supersonic price appreciation that some markets saw in the last couple of years. As Lyons puts it, you’re just going to feel frustrated if you think, “last year, everyone’s house was worth 20 percent more than the year before, so why isn’t my house worth 20 percent more this year?”
Lyons adds: “You’re going to want to prepare to be flexible.” Luckily, you can be flexible on things besides price. The move-in date, for example. “If it helps you sell more quickly by moving out earlier than you want, that’s a good thing,” Lyons says. “You never know what people might want to do to make it convenient for them. If the buyer wants something that isn’t hard for you to give, that’s something in your favor.”
Maybe the buyer wants to store furniture in your garage before moving in or wants to make the purchase contingent on selling his or her own house. If you have flexibility, you have an edge.
In a transition from a seller’s to a buyer’s market, buyers “become much more sensitive to things like dated light fixtures,” says David Kerr, agent for ZipRealty’s office in Oakland, Calif. “When you walk in and the house has that 1970s amber light fixture, they’ll say, ‘This house looks old,’ and walk out. It’s easy and inexpensive to replace that light over the dining room table.”
Kerr isn’t talking only about lights. Stained carpets, scuffed hardwood floors, dripping sinks, torn window screens — most of us live with flaws in our homes that we intend to fix eventually. When you put your home on the market, that day has arrived.
“You really need to look at making repairs that are profitable in terms of selling the house,” Kerr says. He gives this example of choosing your priorities: If your hot tub isn’t quite functioning properly and the bathroom has old, stained cabinets with ornate pulls on the doors, fix up the bathroom first. “They want to see that pedestal sink,” Kerr says. If the choice is between replacing the refrigerator and refacing ugly kitchen cabinets, spruce up the cabinets.
Do homes tend to sell for 2 percent over the listing price, or 5 percent under, or what? Was a house recently sold for a surprisingly low price? Maybe the owners sold it to their own kids, a young family without much money. Or maybe it was a ” short sale” to avoid foreclosure. That’s a good piece of knowledge to have when a buyer tries to use that low sale price against you in negotiations.
Interview at least two, and preferably three or four, potential listing agents, and ask them to prepare competitive market assessments. The agents will look at comparable homes that have been sold recently and at homes that are for sale now, and recommend a listing price and a marketing plan. “Have them walk through the information they used to come up with that estimate,” Lyons says.
You don’t necessarily want to pick the agent who recommends the highest listing price. You’re making a hiring decision, which is an art and not a science.
Hire an inspector
Buyers often make the purchase offer contingent on the home passing an inspection to their satisfaction. Increasing numbers of sellers are hiring inspectors before they put their houses on the market.
An inspector is impartial. “He’ll be able to tell you if the roof needs work, or small electrical things that need to be done, or plumbing things,” Kerr says. Once you have identified and fixed the problems, “it makes the house that much more attractive to a would-be buyer.”
An inspector might spot flaws that would be obvious to a buyer, but that you no longer notice. A good real estate agent does the same, but an inspector will look deeper.
Let’s say the buyer wants you to drop the price by 3 percent. You’re firm on the price but are willing to be flexible by working mojo with the buyer’s interest rate and tax bill.
You offer to pay 3 discount points and lower the buyer’s mortgage rate three-quarters of a percentage point, give or take a quarter-point. By paying the discount points instead of selling for less, you get your price, the real estate agents get bigger commissions, and the buyer makes lower monthly payments and gets to deduct the points from income taxes.
That’s right. You pay the discount points, but the buyer gets the tax deduction.
“It’s a win-win-win-win deal,” says Bob Walters, economist for Quicken Loans.
Kerr doubts that the time is right for offering discount points. “The market hasn’t gotten there yet,” he says. When it becomes a pronounced buyer’s market, or when mortgage rates rise a couple of percentage points, that will be prime time for sellers to pay discount points.
Whether or not you pay the buyer’s discount points, you put yourself in the right frame of mind by merely considering the option. It makes you think like a buyer — and that gives you a competitive edge.