Thinking About Selling your Home? Want to Move up? Waiting for a Sellers Market? Think Again!

In today's market, I talk to a lot of homeowners who believe that the best time to sell and move up to a larger home, better neighborhood, great school district, etc. is when prices are rising (aka a seller's market). This couldn't be further from the truth!  It comes down to incredibly simple math.

Let's assume that you live in central Fremont, and that your home is worth $450,000 today.  We know that prices are still dropping, and you want your home to be in the market and sell.  We will further assume you have a great agent that has thoroughly assessed your home's value and the value of recent sales in your area. Based on these facts, you decide you really do want to move up and decide to put it on the market for 10% less than it is currently estimated to be worth or $405,000.  You do so because the other homes for sale in your area are priced right at market or above.  You want to get the maximum number of viewings by potential buyers and to perhaps draw multiple offers because your home is the best priced home in the best possible condition compared to the competition. In reality your home will probably sell above your asking price due to the factors written above.  However, to keep the math simple, let’s assume that your home sells for $405,000.  It may seem that you have lost $45,000 (which might be true if you were to sell and not purchase a more expensive home).

Now, let's assume that across town, in the neighborhood you want to live in, another great Realtor is having the same discussion with a seller.  The only difference is that this home is estimated to be worth $750,000 today.  The seller has the same motivation as you do -- to move up.  They put the home on the market at a 10% discount, or $675,000 for the same reasons you discounted your property (declining market, to get the most showings and potentially draw multiple offers).  As with your sale, we will assume that the home sells at asking price to keep the math simple.  It would also seem that this seller is losing money ($75,000).  Keep in mind that they are planning on moving up just as you are.  In fact they are looking for a $1,000,000 property.

Now, let's assume that you buy this sellers house.  You actually come out $30,000 ahead.  Why?  You bought at a 10% discount and sold at a 10% discount, In other words, you bought a home that might have eventually sold at $750,000 for $675,000 and sold your home that might have eventually sold for $450,000 for $405,000.  The difference is: $75,000-$45,000=$30,000.

You might think I'm crazy advising that you sell for less than market. The reality is that there are two markets in every locality: those homes that are in the market, and those that are not.  Have you ever wondered why some homes have been on the market for a long time and aren't selling?  There are really three factors, but one plays the largest part in today’s market -- price.  The other two major factors with respect to a home selling or not are condition and marketing, both important but much less so than price. 

Let's look at what happens using the home values above.  Remember -- we are in a declining market.  Both homes go on the market at their current estimated value: $450,000 and $750,000.  They get some viewings, but not as many as if they were priced lower because they do not stand out in their respective price ranges.  If they are not sold in 2 to 3 weeks, buyer interest drops because they are becoming stale.  Your agent asks you to drop the price.  Your agent explains that the market has dropped 5% and that you need to drop your price by at least that much.  You begrudgingly agree to drop your price to: $427,500 and $712,500 respectively and you wait and wonder why your home isn't selling.  The cycle repeats and you end up pricing at the 10% discount point, but still no sale.  Again, the cycle repeats and you price it lower and lower and lower.  Stop!  Do not get caught up in this cycle!  This happens to far too many sellers.  The fact is that they are chasing the market down.  If the home eventually sells, it sells for much less than the original 10% discount advocated above.  You have become frustrated and perhaps decided to wait the market out, simply because you weren't realistic from the beginning, or because your agent didn't educate you about the market, or worse, because you didn't listen to your agent.

Try the math in reverse.  In other words, assume it is a seller’s market and that sellers are getting multiple bids on their homes.  Take the same to home prices above (again to keep the math simple).  Let's see, that means that you $450,000 home ends up selling for $495,000 and you end up buying the $750,000 home for $825,000.  Seems like you came out of this in good shape, right?  Wrong!  You gained the $45,000 on your sale, but it was immediately erased by the extra $75,000 you paid.  In sum, you ended up losing $30,000.

Which market would you rather move up in?  You gain $30,000 in the move in the buyer’s market, or you lose $30,000 in the seller’s market. Further, the difference between these two scenarios is really $60,000.  The choice is yours.

Derick L. Drumm is a Real Estate Broker, a Realtor®, a Graduate of the Realtor® Institute (GRI), and has a certificate in Internet Professionalism (e-Pro).  Derick has lived in the Bay Area all of his life and graduated from Oceana High School in Pacifica.  He served his country for almost seven years in the United States Navy where he attained the rank of ETI (Electronics Technician First Class, or E6).  Derick later graduated from the University of Phoenix with a Bachelors Degree in Business Management (BSBM). He was licensed by the State of California as a Real Estate Broker in November of 2005, just as the market peaked and began its descent.  Derick has found success in this declining market by focusing on the success of his clients and ensuring that his clients receive outstanding customer service.

Derick is currently an agent with Keller Williams Benchmark Properties in Fremont, California.  He may be contacted directly at (510) 432-0617. Alternatively, he may be contacted via his website at http://Tri-City-Homes.com or by email at Derick@Tri-City-homes.com. His mailing address is: 39500 Stevenson Place, Suite #108, Fremont, CA 94539.