Price test: Before you list your home with an agent, ask one key question

by Larry Gavrich, editor

 

    Hundreds of thousands of homeowners will make a fateful choice in the coming months.  No matter the condition of the market, they will list their homes for sale because they have to or want to.  Most of them will ask for

the help of a real estate agent.  The smartest homeowners will choose their listing agents with something approaching the care and rigor with which they choose a doctor or lawyer.  But many will simply pick someone they know or have heard of, or someone recommended by friends who may have sold their homes in a different housing environment or under entirely different circumstances.
    Real estate agents reflect the general population and come in all types:  smart ones and dumb ones, aggressive ones and passive ones, intellectually curious ones and those who don't read the local newspaper.  Some will do their best for you and others will hardly do anything at all to move your house.  Most will sound good during the courtship phase, especially when they present a comparative market analysis (CMA) on your house and a selling estimate that exceeds your expectations.  Your first instinct might be to go with that agent, since the difference between what you thought your house would fetch and their "prediction" will pay for their commission.  Resist the urge to fall under the spell of a high estimate with all the vigor of Jack Bauer (the hero of the TV show "24" who never buckles under temptation or torture).
    Your house is worth only what someone will pay for it, not what someone paid for a similar home at the other end of your neighborhood a month ago or for the home next door where your neighbors added a $100,000 upscale kitchen two years ago.  Never accept just one CMA; ask three different agents to provide you with one CMA each, then throw out the high estimate (the agent may be pandering to you, consciously or unconsciously) and the low estimate (the agent might be looking to sell your home within a few days) and go with the agent with the middle estimate (unless he or she can't put two cogent sentences together).
    In the current market, there is one other way to choose a listing agent, and that is by asking the contenders one simple question:  "Have prices bottomed in our area?"  If the quick answer is "Yes," then move on to the next agent, and the one after that...until you find one who is either honest enough or smart enough to say, "I don't know."  Any right thinking industry observer or market economist this side of the ever-misleading National Association of Realtors cannot know if prices have hit bottom.  They may look at a slight price increase in some markets from April to May, as reported earlier this week, and say, "See, prices are turning around."  But that is akin to fans of the woeful Washington Nationals baseball team thinking that a two-game winning streak will eventually lead to winning the World Series.  Eventually, maybe, but we can only hope it happens in our lifetimes because then we know we will have lived a long time.
    An agent who sees a price reversal trend clearly is ignoring or denying the reality of some coming badness that may significantly affect housing prices.  The next wave of mortgage loan resets is looming, and many more owners will come to realize that those cheap loans they took on when prices were a rocket ship upward are no longer affordable.  More foreclosures will ensue, with pressures on pricing in the markets hardest hit.  Also, we have no idea when the dismal employment figures will turn around; we could very well be headed into deeper double-digit territory before the unemployment rolls begin to thin.  People without incomes, or fears of losing theirs, are not going to buy homes unless their jobs (and lives) depend on it.  This will tamp down price appreciation for another year or two, since general economic trends typically lag unemployment trends.
    Although you don't want Chicken Little for a real estate agent, you don't want Pollyanna either.  The more sober your agent is about market conditions, the more realistic he or she will be about your prospects for a sale, and what price will attract buyers to your home in a thin market.  Finally, understand that a real estate agent does not really care about what price you fetch for your home.  A $30,000 price difference is a big deal to you as the seller, but a 3% listing commission on $30,000 probably means about $400 to the listing agent (remember, the agent's broker gets a healthy cut).  Suffice to say that agents care about a quick sale much more than they do final selling price.
    All this concern about prices leads to a conclusion that everyone with a home to sell should try to wait until the market improves, right?  My strong response is "No," not if you have been planning to move and are in the black in terms of your home's value (that is, you can sell it for more than the remaining mortgage balance).  Keep in mind that as you have lost value in your home, virtually everyone else has lost value in theirs, including the one you will buy next.  And if your relocation will result in a cost of living decrease for you (and your family), the improvement in your lifestyle and the relief of moving on with your life will lift a big weight off your shoulders.  

    I am a licensed real estate agent who does not take any listings for homes, although from time to time I will advertise homes at this site and in my newsletter, Home On The Course, if I think they represent excellent value to my readers, and if I have personally visited the golf community in which they are located.  I do refer readers and other customers to qualified real estate agents in the southern U.S., for which I receive referral fees if my customers purchase a property.  I never charge my customers any fees, nor do the real estate agents I engage, and there is absolutely never any obligation to purchase.