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Sellers 4 Biggest Mistakes that Lead to Loss of Equity in a Sale

As this gets posted in January of 2023, the real estate market in Metro Phoenix is pretty balanced; more balanced that a lot of the internet would have you think.  Inventory is shrinking again, and a great real estate agent can get a buyer some pretty low interest rates with a properly executed 3-2-1 Buydown.   We are also seeing signs that our long term trend of a late winter/early spring increase in activity is taking place.

In a stable market, you might assume that it is easy to sell a home properly.  Surprisingly, we keep seeing the same mistakes being made by sellers no matter what the market is like.

Here are a few mistakes we see on a regular basis that we hope to help you avoid:

Accepting a Solicitation Offer.

A lasting trend is “direct to seller” investors exploiting sellers . We’ve all received postcards and letters from people who “Buy Houses.”  Some of them are well-funded by Wall Street like OpenDoor, some are simply a local wholesaler trying sell the contract they write with you without any intention of actually closing escrow themselves.  Their basic formula is the same. They promise to make everything easy;  “no commissions” “sell as-is” “We handle everything,” and the promises go on and on.  But the truth can be painful. Commissions just get renamed “fees” which sometimes total over 11% and “as-is” just means swapping unhandled condition issues for large price deductions.  More often then not, the contract price drops precipitously after inspections are done and the closing date approaches. They know that in any negotiation, the party who needs the deal most loses. In this case the losing party is usually the seller who is just a few days away from closing when they suddenly finds themselves forced to agree to last minute changes in the terms of the contract or lose the sale.

These investors are counting on the fact that many sellers are unaware that they can sell a home “as-is” through a traditional brokerage like ours. Competition from multiple buyers (even if it’s only multiple investors) is the absolute best way to protect a seller’s price. The fact is, investors who solicit people for whom time is more important than money benefit by the lack of competition and by using misleading terms. 

Not listing your home on MLS (i.e. believing that both you and buyer can “save the commission”).

The most common reason sellers attempt to sell their home “For Sale by Owner” or use a “Discount Broker” real estate company is to “save the commission.” Although we fully understand the impulse (who doesn’t want to save money?) the statistics tell a different story. A recent study of this was posted in ARMLS Stat: “When we test our model against MLS sales only, properties that were sold using a real estate agent via the MLS sell between 8.5% and 9.0% higher than properties not listed on the MLS.”   

You might ask yourself “How could that possibly be?”  Is it better marketing?  The honest answer, is “not really.”   Competition for a home is what protects value. The main purpose of the Multiple Listing Service (MLS) is to employ all 35,000 (approximately) in our area to compete for the home.

You might also ask yourself why a buyer would select a “By Owner” home in the first place. Since buyers don’t directly pay the commission when they work with an agent, why would they care if the home is sold by a broker or by owner? The answer is because they think that by buying directly from the owner, they can split the savings generated by not paying a commission.  They EXPECT to pay less so they OFFER less.  And since a seller selling by themselves doesn’t have nearly the exposure they could get by working with the MLS pool of buyers, they don’t really know what a large pool of buyers would actually pay for the home. They settle for the first buyer they meet. 

Bad Pricing.

Thanks to the internet, sellers and buyers have more incorrect information available to them than ever before.  And it’s almost instant.  Bad information has led to both underpricing and overpricing of homes. Establishing pricing through an AVM (automated valuation model – for example Zestimates) is fun and interesting, but is by no means is an accurate way to determine market value. Algorithms can’t account for all the factors that make up proper pricing – lot size, property upgrades and condition, etc. For this reason, Zillow itself will tell you that it’s AVM can be off by as much as 20% in some markets (although to be clear, it is generally more like 8% off on average, according to Zillow) .  If the average home is worth $500,000 in a market (a made up number pulled out of the air to make this point) than Zestimates can be as far off as $100,000 either way.  See http://www.zillow.com/zestimate/#acc for more information.

Ask yourself why after all these years, lenders still require an appraisal if all of this information is so readily available.  The truth is that it is because no computer that has not even actually looked at your property has any way to properly form a judgment of value.

Not hiring an agent you can fire.

This may be the least obvious of the errors, but it is an error. Why would this matter? Many sellers are unaware that once they list with certain (not all) agents, they cannot cancel the listing agreement –even if they are unhappy. Being tied up in a 6 month listing agreement with the wrong agent (bad agent, bad marketing, improper preparation of the home, etc.) can not only rack up days on market but can eliminate the opportunity to sell during prime market periods while waiting for the listing to expire. Some of those agents will “agree to cancel” for a fee. The best protection for you is obtaining the right to cancel at no charge as part of the listing agreement. We always provide our clients the right to cancel at any time for free.

For a free market valuation of your property, please contact Vince Davis or Nicole Drew, The Helping Hands Real Estate Team ™ at 480 385 9107 or at Vince@agentswithoptions.com. Call within 30 days and ask about a free home warranty to be placed on your home immediately if you list your home for sale with us!

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