The McDonald Real Estate Team

RE/MAX North Lake

By Sean and Aimee McDonald | Friday, December 14, 2018
The McDonald Real Estate Team, Meeting in the Middle

When trying to ascertain the value of a home, buyers and sellers understandably possess differing expectations.  Unfortunately, inexperienced buyers and sellers may arbitrarily set unrealistic objectives, thereby preventing them from successfully achieving their real estate goals.  While differing perceptions are an ever-present reality when buying or selling a home, there’s value in acknowledging the competitive motives of both sides to avoid a negotiation impasse.

When listing a home for sale, sellers naturally expect they’ll receive a full price offer.  However, for a seller to accomplish their goal of selling at, or close to, their asking price, they must also competitively price their property according to market conditions. 

A home’s market value is the most probable price the property should bring in a fair sale, but there are distinct differences between market value and market price.  Although a synergy between the two exists, they’re not always interchangeable.  The determined value of a home is not necessarily the price for which it’ll sell.  The final purchase amount may be higher or lower than the home’s market value.

There’s a dynamic that comes into play when sellers make incorrect assumptions regarding the valuation of their homes.  From over-confidence that the property will sell, to concern that it won’t, owners of overpriced homes are often forced to acquiesce to offers less than what they might’ve otherwise accepted had they appropriately priced their home in the beginning.

There are distinct differences between what the market will bear and subjective valuation.  In effort to ensure a home’s proper market position, sellers should have a comparative market analysis (CMA) performed to determine a price range conducive to market demand.  For some sellers, a home’s actual value can be an unwelcome wakeup call, differing from what they had originally perceived their home to be worth.  However, that’s not to say the reverse isn’t also sometimes true.  But in either case, a CMA is a valuable tool for establishing a realistic price point and removing subjectivity.

An overpriced home often languishes on the market, typically selling less than it otherwise would’ve, had it been priced correctly from the start.  Ultimately, an appropriately priced home is better positioned to sell in a shorter amount of time, than overpriced properties which are systematically reduced.  Understanding sellers are motivated to receive the highest and best offer possible, they’re usually better served in competitively pricing their properties from the onset of their marketing efforts.

Another concern of overpriced homes, is their ability to appraise.  A buyer’s uninformed commitment to purchase at an amount exceeding valuation may result in a contractual termination due to mortgage lending constraints.  Pricing a home slightly below the competition can be an effective means of edging out other comparable properties while remaining within appraisal limits.

Sellers have a significant amount of control when determining the terms and conditions they’re willing to accept; they should knowingly be prepared to entertain certain concessions.  Sellers who immediately reject competitive offers, in the off-chance of receiving a higher offer, may ultimately sell at a loss.  The wait for a higher offer is often overshadowed by perpetuating expenses encumbered in home ownership.  When in doubt, sellers should consider submitting a counter-offer.

In contrast, buyers customarily seek to purchase for the lowest price possible, of course, this shift presents its own unique challenges.  Whereas a seller is generally aware of other sellers, the effect of other prospective buyers in the marketplace isn’t always immediately apparent.  Homebuyers rarely see their competition until multiple offer situations occur. It’s in these circumstances when a buyer truly becomes aware of the influence of others.  The submission of an uninformed offer can result in unanticipated repercussions, and potentially the loss of a home.

When buyers first initiate a search their confidence levels are typically high; however, like sellers, overconfidence can lead to ineffectual decision making.  Understandably, prospective buyers want to purchase at a discount, but over time those who’ve consistently lost negotiations and become fatigued by the process, may be prone to impulsively submitting offers on properties not meeting their needs.

Arguably, each real estate market has its own competitive characteristics.  And, while it’s natural for most homebuyers to begin their search online for the best possible deal, buyers shouldn’t succumb to thoughts of purchasing at unrealistic prices.  Substantially undervalued purchase offers typically won’t be accepted and will only serve to frustrate both sides.  Preparing a compelling offer, respective of market conditions, is a far more viable and effectual means of attracting a seller’s attention and ultimately acquiring the right home.

Informed buyers are prepared to negotiate when the right opportunity is presented, and they’ll do so from a position which is based on knowledge.  Admittedly, there are times when a bidding competition with other prospective homebuyers may be warranted, but such engagements should only occur after predetermined not-to-exceed thresholds have been established.

Both buyers and sellers typically benefit from the counsel of an experienced real estate practitioner.  However, both parties must also remain objective, setting aside preconceived notions about improbable gains.  There’s value in having well-informed agents working both sides of the transaction to ensure fluidity is maintained.  Removing unrealistic expectations and acknowledging the needs of both sides of a transaction is crucial and can strategically position both parties for successfully meeting in the middle.