Compromise May Be Necessary to Sell Overpriced House
Last month, when Fred Sands sent a letter to 5,000 home sellers urging them to cut prices, few of his colleagues in the real estate business were surprised. Competitor Jon Douglas even praised Sands for speaking up.
As many as two-thirds of the homes for sale in the Valley may be overpriced, conceded Lon Adams, incoming president of the San Fernando Valley Board of Realtors and a broker at R. R. Gable Inc. in Woodland Hills. Only about six out of every 100 single-family houses and condominiums on the market will sell in any given month. Given the present rate of sales--in November, 772 single-family houses and condos sold in the Valley--only about one-third of the present housing inventory will actually be sold by the middle of next year. That, Adams said, suggests that the other two-thirds are, by definition, overpriced.
Obviously, Adams’ premise assumes that if any property is reasonably priced, someone will buy it. Tell that to a laid-off GM worker or aerospace engineer.
In fact, only 7.7% of homes and 6.4% of condos in the San Fernando Valley sold at list price in October. And really overpriced homes don’t even figure into this statistic because they usually don’t sell, or are pulled off the market altogether.
The one surprise in all these numbers is that back in November, 1989--when home sales in the Valley were still going strong--only 6.9% of the single-family homes sold at list price.
However, consider the $272,107 average list price for houses and condominiums on the market for the three months that ended Nov. 30. The few properties that did sell, according to the Valley Board of Realtors, sold at an 11.1% discount from their original price.
“Anything over the market by a few percentage points is overpriced because of the enormous inventory of homes for sale,” said Perry Cross, Studio City branch manager for the Jon Douglas Co. Why aren’t prices cut faster? Homeowners keep thinking that it’s the 1980s.
“It takes sellers a year before they accept the fact that their homes aren’t worth what they thought,” Cross said. “We’re still in the process of reducing prices and getting our sellers to cooperate.”
Cross estimated that 5% to 10% of his listings ought to be reduced in price by an average of about 20% to have a chance to sell. Despite the acknowledged need for some sellers to cut prices, Cross didn’t particularly welcome Sands’ letter, which basically urged some sellers to consider a “major price reduction” or give up on selling their properties for the next three years.
“I thought Sands would be more sensitive to that type of publicity,” Cross said. “I was depressed by it.”
One can’t help but wonder why sellers are being blamed for overpricing their homes. After all, it’s the brokers who have the job of helping their sellers pick a price. But, Cross said, “there are a lot of agents out there without much experience or training. They find it hard to say no to prospective sellers.” In the final analysis, he said, “it’s futile for both the seller and the broker to overprice the listing.”
“I get up at every sales meeting and tell people to get rid of any listings that are overpriced; they’re a waste of time,” said Judy Christy, vice president and sales manager at the Studio City office of Fred Sands Realtors. Getting sellers to cut their price is a very emotional experience, Christy said. “They perceive it as money lost--but it was money they never had.”
Christy said she’ll refuse to take any listing that’s 10% over the market for comparable homes--that is, properties nearby that have sold. And, she added: “We don’t consider listing prices. We only look at sales and escrows.”
As for the letter written by her boss, Christy was--not surprisingly--very positive. “I think we got several price reductions because of it,” she said. The most overpricing and the biggest reductions are happening at the top of the market.
“Sellers of lower-priced homes are more inclined to listen to the advice of brokers,” Christy said. Besides, she said, it’s easier to pinpoint comparable sales for lower-priced homes than for customized luxury homes. The more “comps” there are, the more price-conscious buyers will be.
“I think there still are a heck of a lot of unrealistic sellers,” said Adams of the Valley board. “There are also plenty of brokers out there who will work with a seller who prices unrealistically,” he said.
“I don’t fully understand why an agent would do that, but it happens.”
Sellers had better be ready to compromise on price if they expect to get their house sold, Adams warned. “You’ve got to be extremely competitive if you want to sell in this market.”
