|
In my time as a real estate professional I have observed a few absolute certainties. The first is that everyone who owns a home, aspires to own a home, or casually passes a home for sale is interested in the real estate market. In fact, I have heard the question, "How much do you think I can get if I sold my home", more times then I can count. Consequently, this question inspires the second absolute certainty; every real estate agent is expected to know the answer. The unfortunate truth, however, is that real estate professionals do not have a crystal ball. Our knowledge does not pertain to predicting home values, but rather analyzing the current market and applying these statistics to a given home. By utilizing this system of data comparison we can use history to provide us insight on the future.
The final absolute certainty is that every seller, contemplating the price of his or her home, will resist the notion of under pricing every time. You may ask yourself why I point out such an obvious certainty. Why wouldn't a seller want the highest price for their home? Well, my answer is simple. There is no such thing as under pricing a home. Buyers always dictate the value of a home. If a home is priced too high buyers will not buy it. If a home is priced too low buyers will see the value and present an offer. I've underlined the "s" in buyers for a reason. Homes that are "under priced" will attract multiply offers from different buyers. These buyers will then have to compete with one another for the home. This competition raises the price to a point where the true value of the home is reached.
If under pricing a home can never happen, what is the effect of overpricing a home? Overpricing a home is actually a much larger problem then sellers comprehend. It seems harmless. Price your home higher at first and maybe someone will bite. In fact, many sellers believe raising the price is beneficial in combating low offers from buyers. If buyers feel the price is too high they could present low offers, correct? No, as convenient as this approach may seem the reality of the situation suggests that these motives are merely common misconceptions. Buyers recognize which homes are over priced because they compare every single home on the market to other active homes being sold. For example, if a home should be priced at $2 million dollars and is currently on the market for $3 million dollars, buyers who view the home will compare it to other $3 million dollar homes. This creates a problem because instead of viewing the property as a beautiful home well worth the value these buyers instead say, “well it was nice, but look at what I could afford for the same amount of money.” Thoughts of this nature cause buyers to continue looking rather then presenting low offers.
People want to buy the home of their dreams, yet it becomes difficult to concentrate on all of the wonderful aspects related to a home if the price tag is higher then they feel it deserves. This perpetual cycle continues as time passes by and the seller continues not to receive any offers. The longer the home is on the market the less people come to see it because the excitement of a new listing has now dwindled. When the home begins to no longer receive any attention the cautious seller will then consider lowering the price. Using the example above, let us imagine that the seller then decides to lower the price down to $2 million dollars. This price would have brought many offers from the initial pool of buyers because the value of the home matched the price. Based on this reasoning it appears that the seller will have no problem finding a buyer to pay the $2 million dollars. Unfortunately this is not always the case. In reality, buyers will notice the amount of days the home has been on the market and recognize that the seller might be getting frustrated. They use this knowledge to their advantage and present a low offer in the hopes that the seller will accept. Many times the seller will actually receive multiply offers and still not reach the asking price, all due to incorrectly pricing the home from the start. As ironic as it may seem, overpricing a home can actually yield a seller less money at closing, and more stress and aggravation during the listing period then homes priced lower from the start.
Home Improvement Links
Every homeowner is interested in making their home more valuable.
Here are a few helpful sites to help you improve your home!
The Rules to Flipping Houses
Flipping Done Right!!
How to make money in any housing maket! 10 ways to increase profitability!!
How to increase the odds that you will make money in any housing market flipping homes.
- Making money flipping homes the short course.
1. Find a New Jersey Realtor who is knowledgeable about the area you are looking in. This knowledge will come in handy in many many ways.
2. Understand what the local permit laws are. Is it going to be difficult to do any of the work yourself and still be in compliance with local regulations.
3. Understand you budget, know what you can comfortably spend on purchasing the home, fixing it up, and carrying cost until the home sells.
4. Have a good, well thought out plan, for making the home all it can be (with in your budget constraints). Your Realtor comes in very, very Handy on this point as he/she will have a good understanding of what currently adds value in the homes specific market.
5. If at all possible, before you actually purchase the home, have your budget laid out as detailed as possible so that you understand if this is even likely worth your time. Some homes look like great deals until you do this step. Be sure to add at least 10% to your budget for things you don't anticipate, something always comes up. Believe me something always comes up.
6. When purchasing the home, strong negotiation skills are a must. Make sure that you get the best deal that you can get. If this is the home you want, make sure you get it.
7. OK, you have the home now. Time to add value, get quotes on anything that you cannot do well, and all the things that need to be done and legally you cannot do. Usually home flippers do not hire general contractors, but act as their own general contractor. Once you have hired your contractors, remember they are working for you in a business relationship, keep it that way. Contractors who do a good job, get hired back on other jobs, referred to friends and acquaintances, and basically become a strong ally in achieving your goals.
8. OK, as the work on your flip is progressing, don't be cheap on things. That 10+ year old carpet needs to go; the paint all needs to be refreshed, warm colors not just white and off white please. Remember, kitchens and bathrooms sell houses. Especially if it is a first time home buyer type home, I have found that it is best to have nearly new to brand new appliances in the home, to seal the deal. You should consider adding a new refrigerator, Stove, Dishwasher, built in Microwave, sometimes even Washer & Dryer. Unless the kitchen does not warrant it, try to do black or stainless steel appliances, in a well known brand. Typically you will need to replace the light fixtures as well. You don't have to spend lots of money to make a big difference, but remember understated is usually best.
9. Curb appeal, clean up the front yard, plant some annual flowers, trim the bushes, if the landscaping looks bad, replace it, replace old ugly mail boxes, put a nice quality welcome mat on the front step, if the front door is in good shape, paint it, if not in good shape replace it. First impressions are everything.
10. Time to sell it. Sit down with your Realtor and carefully go over the comparison properties for the neighborhood. Look at days on market, what is the trend, is the market improving? Price the house at the market. Is the market stable? price the house 1% to 2% below the market for a quick sale. Is the market declining? price the home 3% to 5% below the market.
The goal is to turn your investment as quickly as possible at a reasonable profit level. You can then move on to the next project and continue to make money. For more good info on real estate as a investment read flip a good resource for good practices for success.
Remember, Over pricing your flip is the worst thing you can do. It leaves a bad impression on the would be buyers who know that once there has been a price reduction, usually there is more room to deal yet.
Michael Pennisi Home Page
|
|
