Differences of opinion

August 2007

Differences of opinion

House for sale. Original image at htpp://www.sellingreno.com/

A seller and listing agent have an incontestible right to decide on the asking price for a home, regardless of what a potential buyer may think it's really worth. Equally, there's no reason why a buyer and his/her agent shouldn't choose to offer an amount that falls far short of the listed price.
Indeed, the "fun and games" of the real estate business rest, as much as anything, on the willingness and ability of the parties involved in a transaction to end up with what's often referred to as "a meeting of the minds." Or, to put it another way, the challenge lies in arriving at what's also described as "the magic number."
All theories of value apart, there's an art involved as much as any scientific basis for what a property will (or should) sell for. In fact, it's a case -- to quote yet another frequently uttered expression -- of a Willing Seller and a Willing Buyer reaching a conclusion that each of them feels has some degree of justification. If negotations proceed the way they ought -- or deserve -- to do, the end result should be a Win/Win one. If one side considers themselves a loser, there's a good chance that the deal will come back to haunt the winner one way or another.
If all's fair in love and war, it should apply no less in bringing a real estate deal into being.

Facing up to the differences
A starting point that most agents will agree upon -- whether their sellers and buyers readily accept the fact or not -- is a Comparative Market Analysis. Even though there are perhaps no two houses exactly alike, an indication of value can be found in a recognition of what similar properties are currently listed at; what they have recently sold for; and what asking prices didn't lead to sales (or perhaps any offers). It isn't an entirely perfect system, if only because other factors can play their part. Nevertheless, if $200,000 is the figure that comparable places are presently listed at; if an amount quite close to this figure is what buyers have been willing to pay in the last few months; and if the records show that anyone listing at (say) $225,000 hasn't found anyone prepared to pay it; it's a fairly safe assumption that $200,000 is what the asking price ought to be.
One simple proof of this theory can be found by looking at places listed at say $100,000 and $300,000. The differences in what people can get for their money are then quickly apparent and show that not only are people going to get what they pay for, but the $200,000 price range is fairly obviously in the middle.
It's also a fact that most buyers have a budget and will look at the options the market offers them. They're unlikely to consider places that are priced much higher and they'll tend to ignore anything that's notably cheaper (save for the occasional [and necessarily true] bargain that turns up).
The comparableness can also be found in the ways of location, condition, bells and whistles (or lack of them), and, to some extent at least, style, age, and length of time on the market. Indeed, the further away (regardless of the terms) a place happens to be from the norm, the less likely it's going to sell (if at all).
As listing agents are given to saying: price it right and, in no time to speak of, you'll see an offer you'll be able to accept, but price it wrong and you may not see anything except showings that simply help sell something else. (And, whether the seller realizes it or not, this is why some agents will take a listing regardless of how out of line the price has to be -- it can connect the agent with a potential buyer for another place.)

Supply and demand
The ups and downs of the market are a longtime -- and still ongoing -- feature of the real estate business. Sometimes a place sells before the listing agreement ink is dry. Sometimes it looks as if you couldn't give it away. And sometimes, there seems to be no logical explanation.
However, there are outside influences, frequently rooted in political decisions or upheavals, that affect the market -- and these are often difficult to foresee and not always accompanied by immediate (and perhaps desired) consequences.
One example can be seen in the tinkering with interests rates that our federal government has a hand in (even if the Bank of Canada is usually blamed for it). Yet, although attempts to control inflation are unlikely to be permanently set aside, a lot of officials despair at their seeming inability to dampen the high demand for housing, not to mention the continuing rise in prices.
However, local factors impinge on market results as well. Regardless of pricing, sales are governed by what's currently available, and this isn't always what people are looking for. Thus, there are times when a particular kind of listing will sell in a heartbeat and there are times when there isn't a single interested buyer in sight. This sort of mismatch between supply and demand can mean that it's going to take several months (and even years) to sell anything that can be considered a One of a Kind property. It can also encourage buyers to make offers well below the asking price, arguing that the length of time on the market indicates that the price is too high -- which, regardless of the rationale, may not, in fact, be the real underlying reason.
Not the least, too, is the matter of motivation. At any one time, a sale is determined by the degree to which the seller must sell and how much the buyer needs to make a purchase. These two aspects are subject to variation like the others that have an effect on whether, how quickly, and at what prices sales occur.
All told, it explains why any agent worth his/her salt (be it on the listing or selling side) knows how inexact the market happens to be and calls for patience, persistence, and perseverance. Be it a matter of science or art, the "game" and the "fun of it" involves numbers more than any absolute certainty.

What to look for
If such considerations about the unpredictability/volatility of the market are ignored, however, there are several points that can (and, to my mind, should) be used to determine how much a buyer ought to offer for a property or even whether an offer makes sense.
The list is by no means complete, but there needs to be a sufficient degree of satisfaction when the following pluses and minuses are taken into account.

•   The location -- accessibility to schools, churches, shopping, medical facilities, transportation, place(s) of employment, etc.
•   The neighbourhood -- mature (or not), possible changes in value (up or down), ambience (in keeping with buyer tastes and interests), compatibility of the neighbours (socio-economic status, family age and size), sense of community/friendliness, etc.
•   Investment factor -- likelihood of resale that will recover purchase price, opportunity (and/or wisdom) of paying for improvements, chance of renting in part or as a whole, degree of affordability, value to a lender, etc.
•   Condition -- a host of factors, such as wiring, plumbing, insulation, windows, heating and air conditioning, flooring, kitchen(s), bathroom(s), size and number of rooms, floor plan and flow, exterior finish (including roof), driveway, garage, garden and landscaping, the existence (or lack) of "bells and whistles" and, in the case of rural properties, how good (or not) the wells, cisterns, and septic systems happen to be.
•   Curb appeal and the inside impression, evidence of previous pride of ownership, chance of being able to share in and maintain it. etc.
•   Whatever special circumstances (from either side of the transaction) can be viewed as pertinent -- need for a quick sale, need for immediate accommodation, cash offer instead of a conditional one, etc.

In summary, it seems fair to say that selling and buying houses isn't a cut and dried affair. There are several (and sometimes conflicting) points of view to be considered. In fact, the outcome can, often enough, be akin to how the weather is going to turn out next week -- it's anybody's guess!