How To Avoid The Biggest Mistake In Real Estate

Posted by Joe Manausa on Tuesday, October 21st, 2008 at 10:50am.

Pricing A Home To Sell PictureAnybody who has ever found themselves trying to sell a home invariably struggles with the question "What price should I set on my home?" While normally this is an important decision for a homeowner to make, today it is one of the most critical decisions that must be made in order to sell a home.

The Tallahassee real estate market appears to be similar to most real estate markets around the country. There is a gross excess of inventory of homes and buyer activity continues to drop. This means that the effective home inventories are rising (months of supply of homes).

Supply And Demand Dictate Home Values

We must never forget that real estate is a commodity and as such, reacts in the real estate market just as any other commodity behaves in its own market. When supply outraces demand, values fall. When demand exceeds supply, prices rise. We call the former a buyers' market, and the latter a sellers' market. In real estate, we typically see a balanced market when supply is 5-7 months. Anything less than that is a sellers' market, and of course greater is a buyers' market.

Supply And Demand Of Homes In the Tallahassee Real Estate Market

As we can see from the graph above, we are definitely in a buyers' market, with over 18 months of supply of homes. I'm hoping the last move on the graph is indicating a flattening of the market, but it is way too early to know for sure.

Avoid The Biggest Mistake That Home Sellers Make

The biggest mistake I see from people who want to sell a home comes in both good and bad markets. They price their home too high (because they do not want to "leave anything on the table"). While this appears to make sense, it actually works against them as studies have found that the "freshest" homes on the market sell for a higher dollar.

The following graphic shows that in an upwards moving market, a home that is priced too high will eventually sell when the market "catches up" with the value the seller has put on the home. In the graph below, the blue line represents the value of a home over time. The picture of a house on the chart shows the "asking" price of the home in two different scenarios (A = the market was rising, B = the market is falling). Note point "A" on the graphic, where the home owner prices the home above the market and finally sells the home when the market price catches up to the asking price.

Do Not Chase the market in real estate

Looking at scenario "B" in the graphic above, we can see that the home owner started with an asking price that was "above the market." After a period of time, the home owner lowered the asking price. Again, no sale occured so the home owner has since again lowered the asking price. Now, the home is priced lower than the market was at the beginning of the listing period, but unfortunately, the price is still above the current market.

Chasing The Market Is The Biggest Mistake A Home Owner Can Make

We refer to the actions of the home owner in scenario "B" as "chasing the market." Price reductions that keep occurring above the market do not usually result in a sale. The house never shows favorably  because the competition (homes priced the same way that are SELLING) are bigger and nicer.

When A Seller chases the market on the way up, he will eventually catch it. But on the way down, this is not true. What is truly tragic for the homeowner in scenario "B" is that the home is now priced below what it would have sold for at the start of the marketing period.

How To Price A Home To Sell

This is a tough real estate market and roughly 1 in 3 homes that are offered for sale are going to sell over the next 12 months! If you do not need to sell your home, help everybody out (including yourself) and take your home off of the market. But if you do need to sell, work with a real estate company that understands your local real estate market. This is critical. Pricing your home at the key point, plus marketing it in the key distribution channels will allow you to be part of the 1 in 3 happy home owners that actually sell their home.

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Joe Manausa is a real estate investor and the Broker and Co-Owner of Joe Manausa Real Estate. He can be reached via e-mail through the Tallahassee Real Estate Website or catch his latest writings on the Tallahassee Florida Real Estate Blog , or by calling (850) 386-2001.
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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.

1 Response to "How To Avoid The Biggest Mistake In Real Estate"

Joe Manausa wrote: Thanks Julie. Once the right price is set, the marketing plan is the next critical element. Thanks for the feedback!

Posted on Tuesday, October 21st, 2008 at 9:56pm.

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