Is That Asking Price Even Close to Reality?

For many years, real estate agents had a pretty easy time when it came to valuing a house to set a listing price. They did a CMA, Comparative Market Analysis, and the gradual appreciation of homes was predictable. Then the boom years came along, and it became more difficult. With bidding wars and flipping that brought profits from months or even weeks of ownership, agents were scrambling to set the right price for their clients.

However, beginning in 2007 and escalating after, it’s the other side of the coin. Real estate agents are hard-pressed to set realistic pricing for sellers. The way houses are priced has changed dramatically. Homeowners must listen to reason and price realistically, or the house will not sell. The problem is determining what “realistic” means. Agents are finding that they must be able to defend their asking prices.

The old saying about comparing “apples to apples” definitely applies. As an investor, knowing what they’re discussing in setting their price can help you to negotiate as a buyer. Buyers, including investors, have a lot of choice, and choices run from “junker” houses that need a huge amount of work, through better foreclosures, and all the way up the scale to occupied homes in great condition and not in distress.

For regular sellers, the agent is telling them that condition is a major factor. With the large foreclosure inventory, most needing work, the price of a home in good to great condition can go up. This is because retail buyers want good condition, and their lenders demand it. Long term rental investors may be able to offer on these houses, but should work toward a bargain price somewhere between foreclosure and what they’re asking at the retail end.

Investors who wholesale or can do some rehab, can find a lot of choice, and the spread in prices between those good condition retail houses and the foreclosures can help in determining the ARV, After Repair Value, of the house.