I just got off the phone with a seller who was wanting me to list their house.  The seller’s house has been on the market for 6 months with another agent.  I looked at the comps and had to tell this seller that the house was never going to sell anywhere near it’s current asking price and even if it did, would never appraise for an amount a buyer getting a mortgage would need it to.   The seller decided they might pursue refinancing rather than sell.  When I got off the phone, I was pretty mad.  Not at the seller, but at the current listing agent.  See, had that agent explained how real estate works, this seller would not have wasted the past 6 months thinking the house might sell.  I don’t know why realtors won’t explain how it all works to people.  I guess they are afraid that if the typical buyer or seller understands our business, then they won’t need us.  I find the opposite to be true. 

So, here are some things that people need to know, especially sellers since they seem to have it the hardest these days:

1)  Today’s buyers are more savvy than ever.  They know if a house is overpriced as if it were a sixth sense.  They are going to look at every house in their price range and pick the best one.  (In fact, most buyers out there have a keener sense of the market than a lot of realtors!)

2)  Let’s say you do find a buyer who is willing to pay too much.  I’ve only seen it happen a few times, but here is a series of events that all must happen in order for you to sell for over market value to a buyer getting a loan these days:  A stupid buyer must end up with an equally stupid or lazy realtor and they get a mortgage from somebody with an appraiser who will “Make the numbers work.”    I can count on one hand how many times I have seen that since the market slowed and we now have all these new laws that try to minimize this type of activity.  (In other words, don’t count on it happening for you!)

3)  Which brings us back to how things roll these days.  Once a buyer and seller agree on price, any buyer getting a mortgage is going to need an appraisal for at least the contract amount.  An appraiser is going to pick the 3 best comparable houses that have sold within the neighborhood in the past 6 months.  In a pinch, they’ll go back a year and/or about a mile from the house.  If the house doesn’t appraise for the contract amount or more, the buyer has the option of basing their loan on the appraised amount and paying cash for the difference.  That happened some in a better market, but few, if any, buyers are willing to do that today.

4)  Realtors guesstimate value by doing what we call a CMA or Comparable Market Analysis.  It is similar to an appraisal….I actually think it is more realistic since we are trying to determine an actual sale price.  An appraisal is mainly to justify a sales price.  We pick 3 or more houses that have sold in the same neighborhood too.  We then cut and paste dollars for differences between the subject house and the recent sold listings.  This is where things like square footage, finishes, condition, etc come into play.  Generally, the less you have to cut and paste the better.  It pays to pick the most similar comps.  Why do we do this?  Basically it is a prediction based on recent buyer behavior.  We are saying “Hmmmmm, if a buyer recently paid this much for a house that was so many square feet bigger than my listing, then my listing should be worth so many dollars less……But my listing has a fenced yard and that one didn’t, so I need to add a few bucks for that.”  I keep the appraisals of recent deals I’ve been in and will use the same values that appraisers use when I do a CMA or have somebody about to write an offer.  That is one reason I have NEVER had a house not appraise for enough.

So, a seller really needs to price their house close enough to the market value in order to attract a buyer, and will also need to convince an appraiser that the contract price is okay.  Keep those two things in mind and if you have a realtor that hasn’t or won’t explain that to you……fire ’em!!

Well, I don’t really like them.  Sure, EVERYBODY would rather go ahead and close in the usual 30-45 days, but there is a good side to this type of contract.  Guess what it is?  The buyer will typically pay you more with a contingency to sell their house first than they would if they could close without having to first sell.

I don’t really get it, but I see it all the time.  A buyer with a house to sell gets really nervous about not knowing where they will be living once they sell their place.  What they do is go out and find a place they like, and kind of “Reserve” their spot in line.  Now, unless the buyer already has a contract on the house they are selling, I always counterback with a kickout clause.  That basically means the IF the seller would like to sell the house to another buyer without a contingency, they give the contingency buyer a certain amount of time to remove the contingency or back out of the deal. 

Another thing I like is that IF the contingency buyer can and does remove their contingency,  you have a back up buyer.  Sometimes it helps you when negotiating repairs after the inspection if the buyer knows there is somebody else wanting the house if the deal falls apart!

I don’t really care for this kind of contract though when I am working with the buyer…..for all those reasons.  When I have a buyer who wants to write a contingency offer, I usually try to get them to just wait until we sell their house first…..unless of course we are just using it to buy time and they are able to remove the contingency if another buyer comes along for the same property.  Here is why I don’t think they are a good idea for the buyer who can’t possibly remove the contingency if needed:  Any decent realtor is going to counterback with a kickout clause.   So, that means that if another buyer comes along they will lose the house.  If no such buyer comes along, that means that the house would still be there when their house eventually sells, and they could probably strike a better deal at that point.

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