Sunday, November 26, 2006

How to sell in the current Portland Real Estate Market

My condo finally sold after ~6 months on the market. I want to mention how I did this and point out some things about the buying and selling process. While incomplete, it does capture a few conclusions/best practices I have used to successfully move a unit in this market.

I put the house on the market thinking it would sell right away (in 2 weeks). It didn’t. After 2 months, it still didn’t. The market was changing, inventory was rising (still is). Fortunately, everyone is stubbornly keeping their prices high refusing to acknowledge that their property isn’t worth what you think its worth: its worth what people will pay for this property in this market. I dropped the price by 5K, then 10K after a month, then 5K, then another 5K. Each at 4 week periods (roughly). Some people think this is too aggressive, but I think they fail to understand the market in Portland: If you carry your property through October you have it until March. Fact of life. You can sell it this year or sell it next year, your choice. Its very unlikely you will move your unit on Thanksgiving, Christmas, etc. People don’t want to put on booties to walk through your property during the rainy season. I was motivated to get out of this property and on with my life. I suspect you are too.

Paint matters
I underestimated how much it matters to people how small, superficial things matter. I spent $1500 to pain the entire unit. Traffic went up considerably; interest went up measured by callbacks, etc. I was shocked at how something so simple could change response. People aren’t rational when shopping. We also added a new sink and shelves in the pantry. Again, you could tell people were much more serious than previous. After the improvements (and with price drops) the unit finally sold. I would expect rational people to just price in a new pro paint job and make an offer if that was the sticking point, but that isn’t how it works. They could even make a complete and satisfactory paint job contingent offer, but nobody does this. Penny wise, pound foolish.

Staging
Do you know about staging? I didn't. Staging is when you rent furniture for your barren home in an effort to help the prospective buyers visualize what it would look like furnished. It works! In an environment that is a buyer's market, you need to do everything you can to move the unit, the cost is worth it. For around 700sq. ft. of space I spent around $300 a month to furnish it for the three month minimum from People's Furniture. Worked out well and was happy with how they handled the move-in, billing, and move out of the rental stuff.
Buyer’s commission
Another way to raise interest is to raise the commission for the buyer’s agent. I started at 2.5% and raised it to 2.7% then to 3%. Raising this commission is a very low cost way to increase interest in your property. At both times we cancelled the listing then relisted the property. Both times we saw traffic and interest spike for the first week.

Aggressively lower your asking price, AGGRESSIVELY
Aggressively price for the current market. Not the market of yesterday and not the market you want. The market of today. Your property is not worth what you think it is, it is worth what comps in your area are selling for. At the end of the day its square footage and location first, other things secondary. When you do a price drop, drop it by a measurable amount. Drop it so it matters and people notice. When I was listed at 250k, I went to 240k. Lowering the price slowly just looks weird. Do you want to sell or not?


Watch traffic patterns

Another thing the realtor is able to do is login to a database that tracks the traffic into a particular unit. You can see which realtors entered, their contact info, etc. This is useful to see if various activities are generating increased traffic. If they aren’t working, you are doing something wrong. Try some of the other tactics mentioned above.

Is it more important to sell or be right?
I know people who had their units for sale when I started and still have their units for sale when I am done. When they lower their prices, they lower them by $2400. They think they are selling in yesterday’s market when their gain was going to be 50% or more in two years. It won’t be. You are prolonging your pain. Now, they are stuck with the winter property problem. They look around at their paint job and tell themselves ‘there is no way I am selling less than X’, and they continue to struggle with two mortgages. On this note: don't buy something else until you've sold the unit you're in. For a few years it really didn't matter, turnover was abnormally high and your real estate was more liquid. Things are settling back to normal patterns now.

Results
So, during this process I’ve dealt with lots of armchair quarterbacks, strange looks from neighbors, and resentment because I’ve ‘lowered the value of the condos in the building’. Guess what folks? The MARKET lowered the value of the condos, I was just the first mover responding to the change. Up over 20% in two years after expenses. I'll take it.

END OF POST

A few other notes on realtors

Realtors on the sell side
On the sell side, you need access to a realtor so you can get your property listed in the RMLS (on the buy side, you can search the database yourself at www.rmls.com). You also want them to do the open houses unless you have lots of free time, and overall manage the transactions, questions, etc. In other words, I believe they provide sufficient value on the selling side and will continue to use realtors in this part of the process. The one exception is in a hot market where FSBO (for sale by owner) may work. However, time and again I hear the story of FSBO not working and eventually turning it over to a realtor. Plus, there is the realtor conspiracy to blacklist any FSBO property. Just be aware of your current situation and appetite for the hassle of selling if you do it without a realtor. I don’t recommend this strategy and have seen it fail more than succeed but do see situations it could work fine. Also, I negotiated with the realtor that if I sold the property (via craigslist, at work, or otherwise) I would keep the buyer’s agent commission if they approached us without an agent. This is likely on craigslist and from work.

Realtor rant on the buy side (how to save $5000)
In my experience, realtors offer negative value in the buying process. You do your own searches on the web and by foot. They show up with the key to take a look at the house. While in the process, they are motivated to turnover the property, so they would like you to buy anything or sell anything for any amount, so every property is cast in a positive light (highest ROI of their time is rapid turnover). There are so many conflicts of interest in those of you and your realtor I can’t begin to rage against this. Pay them nothing if you can. Get the seller’s realtor to help you view the house. Keep the money for yourself and ignore their opinions on what a great neighborhood it is. If you don’t know that yourself you shouldn’t be in the market in the first place.

The one part of the buying process you MUST do to protect yourself is the home inspection. Home inspections are useful as negotiating tools and also to cover things you have no expertise in. For me, plumbing, electricity, etc. are areas out of my domain and I want somebody else to give me an independent, professional, bonded opinion. Inspections, in my experience, have always paid for themselves because for $200-$300 you can always find SOMETHING worth $750 to chop off the price.

A second important issue is the title search. Work with somebody you trust at a title company and go through it to make sure it is ‘usual’. No surprises, etc. The title agent will be able to go through each line item and help you here. Remember: they are insuring it and have a vested interest in it being a ‘typical’ situation here.

2 comments:

kim said...

On the 'paint' thing.

Is this really surprising to you?

Yeah, people are superficial, but at the same time, the superficial is often indicative of underlying issues.

if you go see a house and it stinks and doesn't look like they've cleaned in a year, then chances are they also haven't maintained the furnace, checked the roof for leaks etc.

To look at another example, you could have a friend set you up for a date with a girl. She shows up looking real nice, but wearing two really ratty shoes - with one being a leather dress shoe and the other a sneaker. You'd say "WTF?!", to which your friend would say, "hey, don't worry, that's superficial. She may turn out to be a great girlfriend and you can easily afford to buy her new shoes". True, but you are wondering what caused her to show up like that to begin with! :-)

Open House said...

Thanks for the article - some good points/rants on both sides of the transaction.