A Seller's Tale

Posted at 10:10 AM, Aug. 25, 2008

This is a story about one of my neighbors' quest to sell his house. Not a happy tale for the seller. It illustrates one of my recurrent themes  that timing is every bit as important as location in determining real estate value. Although I was not involved in the listing or sale of his property, I get no sense of "schadenfreude," (satisfaction felt at someome else's misfortune.) My perspective is that of an observer watching a pending train wreck, who was powerless to prevent it.

Our saga begins in late December 2006 when this neighbor (we'll call him "Tom') knocked on my door around 6:00PM. He told me he and his wife were going to sell. We have a good, neighborly relationship. Tom asked me to prepare a listing presentation, but disclosed that he would be talking to several real estate professionals before making a decision. At that time, I was managing a real estate office, which meant I was being paid to help my agents, and was not personally involved in selling. I offered to refer him to one of my very best lising agents, and he agreed.

Since he was already in my living room, I proceeded to get some of the preliminary information, such as why he was selling, where was he moving, when did he want to get there, etc. As usual, I concluded with the general question, "is there anything else that is particularly important to you regarding the sale of your house?" This is what Tom said...."the thing that is most important to me is that I get the highest price, and pay the lowest commission."

My first thought was that it was too bad that he wasn't sitting there one year earlier. In December of 2005, we were in the midst of the greatest "seller's market" I have ever seen, and Tom's attitude would have been appropriate and timely. By the end of 2006 however, it was obvious that things  had changed. Buyers simply were refusing to pay the prices that homes had sold and closed for as recently as late Summer of 2006. Although I did not know then how far off the rails our market was going to go, it was obvious to me that the train Tom wanted had already left the station. (Don't ask why I'm using all these raiload analogies today: I just write what my muse tells me to. )

Nevertheless, I sent one of my best agents out to meet with him. She suggested a listing price of no more than $318,000. That was only about 7% less than the closed comparable sales from the peak of the market. She felt she could get this fairly high price, because the property did show very well.Tom decided to list with another broker at $350,000. That was actually higher than the best closed comparables at the market peak. He priced his house as if the market were still going up.

This listing first entered our MLS on Feb 1, 2007. The property has been subject to MANY price reductions. It seemed that each time, the new price managed to remain above current market value. Tom chased the market downwards without ever catching up, untill very recently. The MLS indicates that his property is in escrow but has not closed yet. From the indications such as yard sales, etc, I think the escrow will close soon. Unfortunately, the list price at the time the property went into escrow was all the way down to $234,900. The actual sales price will not be published untill escrow closes.

I'm going to use conservative estimates that Tom's house, if correctly priced, would have sold for  about $305,000 in early spring of 2007, and that the actual sales price in late summer 2008 will be somewhere around $230,000. The 18 months it took Tom to finally face market price reality will have cost him approximately $75,000. There are two points of relatively good news. First, he still sold for a lot more than he paid for the house. Second, he finally faced reality before further denial might have cost him even more money.

This seller had genuine motivation for moving, but was obviously not desperate. I don't want to over-analyze this, but perhaps it is an indication that even stubborn sellers are ready to price to market reality. If that is the case, we may see a significant increase in buying activity. We'll have to track the numbers. I'll publish an updated chart of sales results soon.