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As a result of the market shift, buyers and sellers have questions and concerns about how to buy and sell in 2023. After a wild ride the last three years, today’s selling experience is vastly different from the feeding frenzy we got used to.
In a changing market, it is about managing expectations as we navigate through less demand and lower supply, but in some cases a build-up of inventory, depending on the kinds of properties (such as new construction), area and price point.
All of these changes leave the consumer with more questions than answers at times. What questions are sellers likely to ask this year and how do you best address them? Here are my top nine that you are likely to come across:
1. Is this still a good time to sell?
For sellers thinking about going on the market, this is one of the top questions they will be asking. With higher interest rates and less buyer traffic, they may be feeling uncertain about putting their home up for sale. Depending on their area or neighborhood, properties may be taking longer to sell which has them feeling unsure about what to do.
While market shifts can bring uncertainty, they also can bring opportunity. Interest rates have come down from the highs of last fall and buyers are adjusting to the “new normal,” which is likely to be the case for quite some time. Inventory remains low and many buyers are coming back into the market after being outbid or electing to sit out the craziness.
There are also new buyers in the mix that feel that now is a better time to buy than over the last three years. Buyers are looking for new choices and many have seen all options on the MLS, so the market is craving new inventory.
2. How much can I get for my house?
This is the multi-million dollar question every seller asks, no matter the market. During the last three years, it was how much can I push the asking price, regardless of what the neighbor’s home sold for. Now, sellers want to know what a realistic price range will be.
It can be difficult to make sense of comparable sales as we have to focus on what has transpired in the last 60 to 90 days at the most. What properties sold for last spring or early summer of 2022, even as rates started to tick up are less relevant, as they still had steam from an “up” market. Reviewing statistics with regard to the percentage of list price to sales price ratio will give the seller an idea of what to expect over the last few months.
Pricing in this market matters now more than ever. Overpriced properties will simply lag on the market and require one or multiple price adjustments to match the condition, location, layout, amenities and upgrades (or lack thereof) of the property itself.
It is important for sellers to understand that a buyer’s mortgage payment is significantly more money than it previously was six-plus months ago. A seller needs to be educated on what the current interest rate climate looks like, and how much a mortgage payment would be for their home, based on going rates and typical down payment scenarios for the price range.
The numbers may surprise a seller as to how expensive it will be for a new buyer to own their home. That is not including taxes, insurance and other costs such as homeowners association fees, etc. Buyers are going to be paying several hundred dollars more for the same price range they were initially searching in before interest rates went up. As a result, many buyers have had to reduce the price point they had originally planned to purchase in before.
In order to determine an appropriate asking price, it is critically important to understand how the home will be sold. Are repairs and improvements needed in order to make the home more saleable? Is a major decluttering in order? What about staging?
Today’s buyers are much more price sensitive, so a realistic approach is key. Aggressively pricing the property from the beginning will likely yield better results vs. overpricing.
3. What about preparation for sale?
Although the last three years had little need for sellers to do much prep for sale work at all, the rules have changed. Now more than ever, properly preparing a home for sale is key. Buyers don’t want to do any work and lack extra funds to put towards repairs and improvements. Despite the shift in market conditions, most turnkey properties sell faster and for more money vs. those that have not been prepared.
So, what does this mean for a seller? Now is not the time to do the bare minimum before putting a home on the market. A seller needs to closely examine their home from both the inside and outside. Consider getting a pre-listing inspection to help troubleshoot items ahead of time. Knowledge is power, and obtaining a pre-listing inspection helps give control to the seller as far as what they want to address or not, without the pressure of being under contract with a buyer.
Decluttering, painting, caulking, any handyman-related repairs, fixing any wood rot, and freshening up the home’s appearance with new plumbing or light fixtures and front door hardware are things that help the home present itself in its very best light. Consider having the driveway, walkways and pool decking pressure washed.
Landscaping enhancements, trimming bushes and trees, removing any overgrown or dead plantings, freshening ground cover with mulch or rock, etc. are also important. Pay attention to your mailbox and front door as well; when was the last time those were painted? Staging and furniture placement is also important to ensure that the home shows in its very best light.
4. How long will it take to sell my home?
Selling a home today may not be as fast as a couple of hours. The seller needs a realistic picture of best case to worst case of a realistic timeframe. The time frame depends on how the home is priced relative to its condition, layout and location.
Providing an accurate picture of days on market over the last 90 days will help give the seller an idea of timing. Depending on the kind of property and price range, there may be some uncertainty when it comes to determining how long it will take.
If the home is competing with a lot of new construction, that could have an adverse effect on the days on market. Conversely, if the property is in a popular area with low inventory or has features that buyers are looking for, it may sell faster than anticipated. Sellers need to be prepared to weather being on the market for several months, depending on the property.
In any case, how well something is prepared for sale and pricing will play a large role in determining the days on market.
5. Will I need to give the buyer any concessions?
Given the higher interest rate climate, it is quite possible that a seller will have to give the buyer a credit towards their closing costs and/or prepaids as well as towards buying down an interest rate. A buyer can typically ask for a seller to contribute anywhere from 3 percent up to 9 percent of the purchase price for closing costs and/or prepaids, depending on the kind of loan involved.
In a rising interest market, the focus is more on the buyer’s payment vs. the purchase price itself and ways to make things more affordable. A seller concession is a great way to keep an agreed-upon price intact while finding creative ways for the mortgage payment to become more affordable or save cash on closing costs for the buyer.
6. What about repairs?
Speaking of concessions, sellers want to know what the expectation will be for buyer-requested repairs in a changing market. Within the last three years, many buyers were waiving inspections and wouldn’t dare think of asking sellers for any repairs as there were too many other buyers waiting in the wings, barring a major issue that needed to be addressed that was required as part of their loan.
Now, it is a different story. Sellers need to understand that we are back to buyers requesting repairs in many markets across the country. As I mentioned before, with higher interest rates, mortgage payments cost more to borrow the same or even a lesser amount and buyers lack a lot of extra cash to take on repairs, let alone do the updating that many homes need. They also have concerns about finding reputable and reliable contractors to do the work.
So, it behooves a seller in this market to obtain a pre-listing inspection before going on the market to tackle any needed repairs and/or come up with a plan with their agent to deal with anything they can’t fix before they go on the market.
Repair negotiation is one of the most unpleasant parts of the transaction. Sellers need to be able to embrace this part of the transaction and be flexible and willing to work with the buyer with regard to their requests. The scope and magnitude of repairs even if they are seemingly minor but “a lot of little things” can cause a buyer to have second thoughts and walk away from the transaction.
That might have been fine a year ago when there were other buyers waiting to jump in, but not now. Losing a buyer may mean a price adjustment has to be made and several weeks or months before another offer is made. Losing a buyer over a home inspection is a mostly preventable situation if the seller gets a pre-listing inspection before they go on the market.
7 . How long will it take to close? What about staying in my home post-closing for a period of time?
We have transitioned from real estate on steroids closing times of two or three weeks to a more normalized market of 30 to 45 days for the most part with few exceptions. Buyers aren’t competing with each other to offer unrealistic closing time frames that put crazy pressure on all involved to meet some arbitrary deadline that was used as leverage in a multiple-offer situation.
Sellers need to expect that buyers will be asking for longer closing time frames vs. that during the pandemic boom, which is really what they were before the pandemic.
Speaking of closing, sellers got very used to being able to stay in their properties post-closing for a negotiated period of time. Several weeks to several months were the “new norm” in the pandemic real estate market. often at little to no cost to them.
Flash forward to the current market and we are seeing fewer of those arrangements. If a buyer agrees to allow a seller to stay in the property after closing, they are likely going to expect the seller to pay them a reasonable leaseback amount to cover their expenses. The flip side is sellers have more time to determine where they want to go.
8. What about contingencies?
Sellers should expect buyers to be writing offers with inspection, finance and appraisal contingencies. Gone are the days when buyers are willing to risk everything. Sellers need to work with buyers to allow them to go through these periods vs. the “gun to their head” mentality of trying to ramrod all through in a few days.
Contingency periods should certainly be balanced to provide a reasonable amount of time, but not an excessively long time frame unless for good reason. While lender pipelines are less vs. what they previously were, sellers need to understand that many lenders have less staff with regard to processing and underwriting, so they are doing more work despite fewer files and turnaround times might take longer than expected.
This is not to say that loans cannot get done expeditiously by going “pedal to the metal,” but there are many parts to the lender machine that can be difficult to control.
9. Are properties appraising at contract sales price? What happens if the property does not appraise?
Appraised value was rarely an issue in our pandemic boom market. Now, things are a bit different and appraisers are likely to be more conservative in their valuations.
We can get a good idea based on comparable sales within the last 60 to 90 days, but if there aren’t any relevant closed sales in the immediate area, the value may be more uncertain and subjective, depending on the appraiser and the kind of loan, which also dictates what properties can or cannot be used, based on the distance from the subject property in question.
It is important to remind sellers that the appraiser is assigned by the lender to perform the valuation and serves as the lender’s eyes and ears. They are a neutral party and not selected by the buyer or seller or the agents representing them.
They also need to be reminded that the agents involved in the transaction have no control or influence on the appraiser. Suggested comparable sales and supporting information can be presented to the appraiser, but it is up to the appraiser to independently determine value.
Should the property not appraise, it is important to work through the situation with the buyer in good faith. Splitting the difference or offering to pay some closing costs to offset the additional monies a buyer needs to bring to closing is a way to achieve a win-win. In some cases, the appraised value will follow the property, no matter the buyer, such as with a VA loan. So, it is important to understand how much impact the appraisal has on the buyer’s loan.
Sellers need to take into consideration who their most likely buyer audience is when considering what financing to accept as the appraisal could impact their ability to work with buyers doing the same financing should the property not appraise with the existing buyer. The seller needs to have a realistic view of their property given comparable sales and realize their property’s value may adjust every couple of months based on what is closing around it Current market conditions and interest rates will likely impact this as well.
Market shifts always bring changes in how real estate transactions are negotiated. In “up” markets, the pressure is on buyers to make heavily seller-favored offers whereas in “down” markets, buyers want to retain their rights with respect to due diligence, contingencies and reasonable closing dates.
Sellers need to be educated as to current market conditions and expectations no matter the market, so they are best prepared to manage the challenges at hand.
Cara Ameer is a broker associate and global luxury agent with Coldwell Banker Vanguard Realty in Ponte Vedra Beach, Florida. You can follow her on Facebook or Twitter.