Seller Strategy: Comps Lower Than Current Value

There has been a big shift in most markets across the country. Prices have halted their multi-year skid and have begun to rise, and in some locations, rise rapidly. Inventory has plunged as fence sitting buyers and anxious investors have snapped up what was available and an air of desperation colors conversations with buyers who probably should have gotten into the market a year ago and who now find selection limited, prices rising and interest rate fears on the horizon.

Congratulations! We’re in a Seller’s Market!

If you are with a real estate company with a competitive advantage in the listing arena (like, say, Help-U-Sell, where low set fee pricing draws sellers like a magnet), this is your moment! As your ordinary competitors scramble to find anything to show their backlog of buyers, you can put more and more properties on the market, properties that will sell and probably sell fast.

But here’s a problem: Recent history is littered with the debris of Short Sales and Foreclosures that sold well below current levels. The comps in your area really don’t reflect current values and your appraisers are, frankly, gun-shy about rising values. They are conservative and unwilling to risk overstating value.

So, your new listing really is worth, say, $325,000, and you have buyer who wants to pay $325,000 . . . but all the comps, some as recent as 4 months ago show much lower values. There’s a good chance the place will not appraise for the $325,000 sale price. What do you do?

Go ahead and list it. Use value-range pricing, like: $320,000 – $335,000 (this sets up a bidding mentality among potential buyers). State in the listing that all offers will be considered on a specific date in the future – say 2 weeks out. Collect offers and on the specified date, review them with the Seller. Counter any that seem promising, removing the appraisal contingency. What you’re essentially saying is: if the house doesn’t appraise for the value of the contract, the buyer agrees to make up the difference in cash. Of course, cash buyers will rise to the top of the stack, but they might not always represent the best option for the seller.

Consider this hypothetical example:

Seller A has a 3br, 2ba 1600 sq. ft. ranch that truly is worth $275,000. Unfortunately, the only comps close by are short sales and foreclosures with values between $240,000 and $260,000. You put the home on the market with value-range pricing of: $265,000 – $280,000, with all offers being reviewed 2 weeks hence.

Buyer B is one of several who submit offers. They have $75,000 cash from the sale of their previous home and want to put 20% down on the new home. They offer $277,000. One of the other bids looks pretty good and is for $279,000, so you counter all of the offers at $279,000 and remove the appraisal contingency.

Even if the appraisal comes in at, say, $270,000, Buyer B can get a loan based on that amount, putting 20% down ($54,000), make up the $9,000 deficit with cash and still have $12,000 left over from the $75,000 they had to start. They really want the house, so they agree to the terms and you have a sale.

NOW: it’s important to remember that different loan products behave differently and have different requirements. Also, local rules and custom vary. So this strategy may not be useful in all situations. Before you proceed, talk with your best lenders and real estate attorneys. Disclaimer, disclaimer, disclaimer. But do check it out. I can tell you that in my own inventory starved Southern California market, this strategy is being employed effectively today.

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