As I was waiting for my family to gather to put a movie on last night, I was surfing and came across a show on the History Channel called Pawn Stars. In a day and age when there is a TV show about everything, it came as no big surprise to find a series based upon the daily antics that occur in a Las Vegas pawn shop.
As I watched the episode, it quickly became apparent that every other customer said the same thing. In fact, it is something that I hear all the time in real estate and the Pawn Stars episode makes for a great example. So what were they all saying ...
Really, no kidding! You want to get top dollar for what you are selling?
Guess what, so does everybody else. And would it surprise you that every buyer wants to ensure that they do not over-pay?
Of Trike's And Home Values
So the best part of the show (or part of the show that I watched) was when a guy with a tricked-out purple trike wants to sell it to the pawn shop. He says he's got $100,000 into the purple and chrome beast, and wants to know how much they'll give him. He tells the camera that he won't take less than $50,000.
The Pawn Stars bring in an expert on custom automobiles and motorcycles who gives it a rough appraisal at $18,000 and the owner is shocked. He incredulously asks the Pawn Stars if they are only willing to pay him $18,000 and receives the bomb shell answer ...
They tell him they are buying to re-sell, they can't pay him more than $14,000, as they are taking a risk buying it and need a margin for profit (buyers have to get a good deal, right?).
Well, the man will hear nothing of it and they part without selling the trike. The owner thinks he can get $50,000 from somebody who comes to town (Las Vegas) and wins a big jackpot (I guess the first thing that jackpot winners do is seek out the first purple trike they can find).
Is Your House A Purple Trike?
The man who owned the purple trike had it custom made for his very specific needs. He spared no cost when adding stereo and television, and everything on and near the engine was made of chrome. He sure thought that trike was special, after all, it was made for his very specific tastes.
But he found out that the market was not filled with purple trike lovers, and they would only value it by comparing it to what else they could find that was similar. And that is where the parallel to selling a home comes into play.
Perhaps you purchased a home and did extensive renovations. Maybe you spent a fortune on Italian Marble for the foyer, or built a back-yard kitchen that cost tens of thousands of dollars. Maybe you ripped through the roof to give a room more volume or put in the pool that rivals the local country club. Regardless of the cost of your renovations, they are only going to have a certain value in the market.
There is not always a direct link between cost and value in real estate. The work that you do on your home might never be fully appreciated (in the same manner) by the market of prospective buyers for your home.
Value Is Based Upon Supply And Demand
The value of your home will always be heavily influenced by supply and demand. Right now, most parts of the US have a glut of homes for sale, and this means that buyers have choices. Just as there were few people (if any) looking for a purple, custom trike, there are very few buyers out there that want a home EXACTLY like yours. That means your features will be generalized and de-valued by the market, until demand returns for real estate.
The key to selling your home right now is to ensure that your marketing plan reaches out to all of the buyers in the market. This is not 2005 when you just put a sign up in the yard and get out of the way. You need to use the world's best internet marketing plan for real estate, and make sure your real estate team is aggressively marketing your home every day.
Ultimately, you must make a decision about your willingness to wait for the right buyer. If you own the $100,000 purple trike, plan on waiting ten years or more for the big seller's market that will certainly follow the cyclical nature of this and every real estate market. But if you know you need to move in the next few years, you should price your home appropriately and sell your home right away.
Real estate values will continue to decline until supply and demand are restored to their proper balance. Don't be the fool in Las Vegas who thinks he's going to sell his purple trike to somebody who wins a jackpot. Have your real estate agent explain supply and demand in your price range, in your area of town, and then price the home to sell today, which is far more than it will fetch when prices drop another 10% over the next year or two.
Joe Manausa, MBA is a 25 year veteran of real estate brokerage in the State of 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.