Author Topic: House Not Selling - Lower price now, or FSBO later ?  (Read 4913 times)

stashing_it

  • Stubble
  • **
  • Posts: 141
House Not Selling - Lower price now, or FSBO later ?
« on: October 06, 2013, 12:14:35 PM »

Hello,

My wife and I have our house on the market, where it has been sitting for about 50 days, with a moderate amount of traffic  (3-4 people a week at the beginning, 1-2 people a week now), but no offers.    In order to facilitate the sale, and to move closer to work, we are living in an apartment while the house is on the market.    The house is currently listed with a real estate agent, who is under contract for 4 more months, and who we owe 6% if it sells.    Additionally if the house sells, we will owe 1.5% on it for state excise tax, and ~ 1.5% for seller closing costs, so call it 9% in total.      With the current housing expenses, I calculate it is now approximately break even for me to sell the house today at the current price, or to wait until the real estate agent contract expires, reduce the price by 10K, and do For Sale by Owner

At 260K, the house is right in the middle of the price range both by total dollar and $/ square foot for the local area, both in terms of listed and recently sold.    Zillow reports local prices increasing rapidly in recent months, as much as $5k for house in last month.  (I know Zillow isn't all that accurate).    At 250K I think it would edge to the lower 40% of the price range, and drop into more search criteria.

The largest local employer near the house is in a boom cycle for profits, however there is some signaling going on that layoffs & attrition are coming down the pipe.    (I have no concern for my own job, but it could affect local market)

The house is structurally sound, but not up to date (in terms of interiors), with older kitchen, bathroom, and carpeting, so it will not bring a premium price.     Since we are living in the apartment, it is clean and showing as well as it can without spending $$$ to replace the carpeting, or countertops or appliances.


My question is, should I reduce price now to facilitate the sale, or wait and reduce price later


The Numbers

House List Price   -   260 K
Mortgage owed on it - beginning of list  -    245 K      ( I am a bit psychologically pegged to this number)
Mortgage owed on it now -   20K    (I recently started reading MMM and realized I had a big cash stash earning no interest better used for paying down the mortgage)
Mortgage Payment (Principle + Interest + Escrow)  =   1700

Money if sold today =   260K - 9%  = 236.6 K

Money if sold in February (FSBO) =  250K - 5% - interim expenses = 237.5 K - interim expenses

Monthly expenses on House
Interest  =   20,000 * 5.875 %  =~    $ 100
Taxes                                       =      $ 200
Water/sewer                             =         80
electricity     (this might be reduced, but it has electric heat which is still needed)     =       50
House Insurance                        =      50
Earthquake insurance   (since I dumped most of my stash into it, I am more comfortable with this)   = 40
Misc  (various upkeeps, gas to drive over there weekly)  =   70

Total                                      =   500


So selling the house in February would net to     237.5K - $500 * 4 months =   235.5 K


Last years Net take home pay for myself + wife   (gross pay less taxes, insurances, 401K contribution) =   ~130 K
Savings on take home pay =   70K
Savings rate =~ 54%    (probably just shy of 60% if 401Ks are included)


Paying down the mortgage has used a majority, but not all, of the non-401K stash.


Cost of apartment =   1100 / month.     Approximately 20 miles closer to work for both wife & I


I see it as basically a wash between selling now, and reducing the price and selling later.    Is there incentive to reduce the price to sell now ?


What actions should I be taking to increase the stash ?    Various thoughts I have had
-   Leave price at 260K, see if it sells.     Attempt to sell at $250K  FSBO when real estate contract expires
-   Drop price to $250 K now, as real estate agent has been suggesting, and see if it sells
-    Drop price to $250 K, but only if real estate agent is willing to take 4% commission instead of 6%   (she eats 5K, I eat 5K)
-    Move back into the house   (severely frowned on by the wife)
-    Rent out the house   ( frowned on by the wife )
-    Focus my efforts on reducing expenses in other areas, which might have $200-$400/monthly opportunity if I can increase my badassness level



Kira

  • Stubble
  • **
  • Posts: 168
  • Age: 35
  • Location: Columbus, OH
Re: House Not Selling - Lower price now, or FSBO later ?
« Reply #1 on: October 06, 2013, 12:45:06 PM »
Why do FSBO? Are either of you a real estate professional or are you just looking to lower the cost? In general, if you don't know what you're doing, and it seems your house isn't one that's going to get snapped up by the first visitor, I would argue that you are not really saving money by doing FSBO because you will have to do so much work to sell it. And even by your own estimates you are not saving anything if you sell in February.

Is there furniture in the house? If you took all of it with you, I would ask your realtor if she/he knows any stagers who can rent you furniture. A furnished house looks better and bigger to buyers. Or if you can spare some pieces, take some of your own stuff back.

As for renting, why is your wife against it? Would you even be able to get a rent that would cover your expenses?

I think part of your problem is that you listed too late in the year. The biggest sale traffic comes between March and July/early August because of the school cycle. So you came a little late on that. I would drop the price now and cut your losses. You don't want to be that house that sits and sits and then gets relisted by another agent and sits and sits. The agents showing your house to other buyers know that it has been on the market a long time, even if you take it off and put it back on.


Another Reader

  • Walrus Stache
  • *******
  • Posts: 5109
Re: House Not Selling - Lower price now, or FSBO later ?
« Reply #2 on: October 06, 2013, 01:24:12 PM »
The first issue is the 6 month listing.  I never sign a listing for longer than 90 days.  Either the lister is doing their job or it's time to move on after 90 days.

If the house has been listed for 50 days and you now have declining traffic, it's overpriced.  The number of buyers has dropped because of the season and they are all finding better options to buy.  Agents aren't showing your house, because it's overpriced.  So, if you want to sell now, lower the price and take the hit.

The problem with FSBO is exposure to the market.  If it were a great property and it were competitively priced, you might be able to sell that way.  However, you are only lowering the price to $250k, and lots of the FSBO buyers want part of your commission savings.  You may or may not save anything or even be able to sell the house.  You will have to drive over for every showing, most of which won't turn into sales.  And you have no idea what interest rates will be in February.

Depending on your market, updates may account for 10 percent or more of the value.  Having a sound but dated house priced in the middle of the pack probably does not allow the buyer room to spend the money to update the house.

What did your agent recommend for the list price?  Did you accept the recommendation or go higher?  Take a realistic look at the most current sales and listings to see where the house should be priced.  Pay particular attention to the dated houses, which are the most comparable to yours.

Renting it out is a more long term thing.  Without some numbers, it's impossible to know if this option makes sense.

apennysaved

  • 5 O'Clock Shadow
  • *
  • Posts: 56
Re: House Not Selling - Lower price now, or FSBO later ?
« Reply #3 on: October 06, 2013, 01:47:13 PM »
I am a realtor. Did your realtor tell you what the normal Days On Market (DOM) is for your area?  In my area, it is close to 4 months, but I would use that as a gauge to whether you should drop the price.  You are coming up on the holidays which can be a tough time to sell.  Also, I agree that the best time to sell is normally spring/summer, but in some areas this might not be the case (we have pockets of town that young professionals flock to & they don't care so much about time of year as they aren't worried about kids & school).

As far as staging, I have done plenty of homes with minimal staging with focus on kitchen & bathrooms.  I normally put nesting tables or side tables with fake plants/candles on them in corners of living areas.  I would definitely try to pull a few of your own items if the home is vacant.  In desperate times, I have bought a shower curtain, a towel & a few bath accessories and returned them during the store's return policy.  Got to do what you got to do-just don't loose the receipt.

As far as lessening the realtor's commission-what percentage would they actually get? In my state, the seller normally pays 6% of which 3% goes to the buyer's broker & the other 3% goes to the seller's broker. So you may effectively only be giving the agent less than 1% after broker fees if you drop the commission to 4%.  If you are planning on using this agent to purchase another home, then I am assuming they would get commission on that transaction & would be willing to reduce their rate on one transaction or another. I normally contribute a percentage of my commission towards my client's closing costs if I represent them on both their sale & new purchase. I believe the rules vary state to state, though, but you can ask.

Good luck!!

stashing_it

  • Stubble
  • **
  • Posts: 141
Re: House Not Selling - Lower price now, or FSBO later ?
« Reply #4 on: October 06, 2013, 01:58:57 PM »
Why do FSBO? Are either of you a real estate professional or are you just looking to lower the cost? In general, if you don't know what you're doing, and it seems your house isn't one that's going to get snapped up by the first visitor, I would argue that you are not really saving money by doing FSBO because you will have to do so much work to sell it. And even by your own estimates you are not saving anything if you sell in February.

Neither of us are a real estate professionals.    The logic here would be to reduce costs to save 3% on comission, and list at a lower price.


Is there furniture in the house? If you took all of it with you, I would ask your realtor if she/he knows any stagers who can rent you furniture. A furnished house looks better and bigger to buyers. Or if you can spare some pieces, take some of your own stuff back.

There is a sofa in the main room, and a dining table in the attached dining room area intended to stage that large room.    The bedrooms and other large downstairs area are empty, which we think make the rooms look larger.



As for renting, why is your wife against it? Would you even be able to get a rent that would cover your expenses?

I haven't pursued exactly why she would be opposed to renting, but in general she wants to be done with the house, and get a differnt place in some number of months which would house us, + her parents + planned children.   (the numbers behind that house would be a different topic).    Local apartments at 60% of the size rent around $1000-$1200 a month.   There may be a premium available to that for more space, so if there were a renter I would expect ~1200-1300 a month.    That would not cover the mortgage payment, but at this point most of the mortgage payment is equity, so it would cover costs of $500.   ( I haven't run numbers to account for time without renter / additional maintanence)



I think part of your problem is that you listed too late in the year. The biggest sale traffic comes between March and July/early August because of the school cycle. So you came a little late on that. I would drop the price now and cut your losses. You don't want to be that house that sits and sits and then gets relisted by another agent and sits and sits. The agents showing your house to other buyers know that it has been on the market a long time, even if you take it off and put it back on.

Agree the listing came too late


The first issue is the 6 month listing.  I never sign a listing for longer than 90 days.  Either the lister is doing their job or it's time to move on after 90 days.

Agree this was a mistake.   There is no clause in the contract for terminating it prior to 6 months, other than my paying damages if done without cause.  (Amount of damages are unspecified.)    Worth trying to do that?   Worth pushing for lower commission in exchange for my lowering the price ?


If the house has been listed for 50 days and you now have declining traffic, it's overpriced.  The number of buyers has dropped because of the season and they are all finding better options to buy.  Agents aren't showing your house, because it's overpriced.  So, if you want to sell now, lower the price and take the hit.
The problem with FSBO is exposure to the market.  If it were a great property and it were competitively priced, you might be able to sell that way.  However, you are only lowering the price to $250k, and lots of the FSBO buyers want part of your commission savings.  You may or may not save anything or even be able to sell the house.  You will have to drive over for every showing, most of which won't turn into sales.  And you have no idea what interest rates will be in February.

My take away from this is of the options reduce price now and take the immediate hit, or wait and try to reduce that hit through lower closing cost of FSBO, there is no little value to the FSBO route, so reduce the price and move on



Depending on your market, updates may account for 10 percent or more of the value.  Having a sound but dated house priced in the middle of the pack probably does not allow the buyer room to spend the money to update the house.

Would most mustachians agree on not putting money into updating the house in this situation, or should I start DIY-ing?


What did your agent recommend for the list price?  Did you accept the recommendation or go higher?  Take a realistic look at the most current sales and listings to see where the house should be priced.  Pay particular attention to the dated houses, which are the most comparable to yours.

Agent recommeded   255K - 265K     We initially listed at 265K with a reduction to 260K after first couple of weeks.   Agent is now recommending 250K, but of course, our interest is not totally aligned   (she wants to sell the house period, I want best net value)



Renting it out is a more long term thing.  Without some numbers, it's impossible to know if this option makes sense.

Any suggestions on how to scope out some numbers, or good links references for this ?

stashing_it

  • Stubble
  • **
  • Posts: 141
Re: House Not Selling - Lower price now, or FSBO later ?
« Reply #5 on: October 06, 2013, 02:11:30 PM »
I am a realtor. Did your realtor tell you what the normal Days On Market (DOM) is for your area?  In my area, it is close to 4 months, but I would use that as a gauge to whether you should drop the price.  You are coming up on the holidays which can be a tough time to sell.  Also, I agree that the best time to sell is normally spring/summer, but in some areas this might not be the case (we have pockets of town that young professionals flock to & they don't care so much about time of year as they aren't worried about kids & school).

Average DOM appears to be ~ 50-60 days in to local area for comparable houses still listed (depending on whether I put in a couple of houses that are pulling up the average)     It is harder to find DOM for the sold, but according to a pamplet she gave us, it was about 45-50 days    (that was about 50 days ago, and local area seems to have been a bit slow)


As far as staging, I have done plenty of homes with minimal staging with focus on kitchen & bathrooms.  I normally put nesting tables or side tables with fake plants/candles on them in corners of living areas.  I would definitely try to pull a few of your own items if the home is vacant.  In desperate times, I have bought a shower curtain, a towel & a few bath accessories and returned them during the store's return policy.  Got to do what you got to do-just don't loose the receipt.

Good advice,  I would do some research on if we can better stage the bath area


As far as lessening the realtor's commission-what percentage would they actually get? In my state, the seller normally pays 6% of which 3% goes to the buyer's broker & the other 3% goes to the seller's broker. So you may effectively only be giving the agent less than 1% after broker fees if you drop the commission to 4%.  If you are planning on using this agent to purchase another home, then I am assuming they would get commission on that transaction & would be willing to reduce their rate on one transaction or another. I normally contribute a percentage of my commission towards my client's closing costs if I represent them on both their sale & new purchase. I believe the rules vary state to state, though, but you can ask.

The theory here would be 2% sellers commission, 2% buyers comission.    I don't know exactly if this would work, which is why I would have to ask




Thanks!

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5109
Re: House Not Selling - Lower price now, or FSBO later ?
« Reply #6 on: October 06, 2013, 02:19:22 PM »
Unless there are quick, easy fixes I would skip the updates.  You are 20 miles away and they take time more than money.  Check the various rental sites (hotpads, Zillow, etc) and Craigslist for asking rents.  Get a list from your agent of the rentals listed and rented on the MLS.  Not sure how renting aligns with your listing agreement, you should read it and talk to your agent.

If you want to sell now, reduce the price.  Price fixes everything.

I do not favor FSBO in February, unless you are willing to put in the time to deal with the showing and selling process and do some updating.  You will need to educate yourself on the process.  There are a lot of risks involved in waiting - interest rates and employment stability in the area being two. 

The best net value is based on what the market will pay at a given point in time.  My guess is even if you could cancel the listing agreement today and put the house up FSBO at $250k, you would have trouble selling.  If the house is worth $250k, you would have gotten an offer by now.  Your list price is close enough to that to draw offers.  Right now you may be looking at something more like $240k, which is why the listing agent wants you to drop the asking price to $250k - the point at which you will draw offers.

Get the rental information, but ask yourself if renting the property for a year or more will affect your ability to buy.  If it does, then selling is the correct choice, unless your wife will agree to rent for a while.

Kira

  • Stubble
  • **
  • Posts: 168
  • Age: 35
  • Location: Columbus, OH
Re: House Not Selling - Lower price now, or FSBO later ?
« Reply #7 on: October 06, 2013, 02:20:50 PM »

As far as lessening the realtor's commission-what percentage would they actually get? In my state, the seller normally pays 6% of which 3% goes to the buyer's broker & the other 3% goes to the seller's broker. So you may effectively only be giving the agent less than 1% after broker fees if you drop the commission to 4%.  If you are planning on using this agent to purchase another home, then I am assuming they would get commission on that transaction & would be willing to reduce their rate on one transaction or another. I normally contribute a percentage of my commission towards my client's closing costs if I represent them on both their sale & new purchase. I believe the rules vary state to state, though, but you can ask.

The theory here would be 2% sellers commission, 2% buyers comission.    I don't know exactly if this would work, which is why I would have to ask

Thanks!

Offering less money to the buyer's agent is shooting yourself in the foot and will make things worse. Why would the agent for your potential buyers want to show them a house selling for $250k on which they will receive $7500 (at 3%) instead of a house on which they will make $5000? Their buyers aren't going to like it that much more because it is $2500 cheaper but most agents will not bother bringing clients to a house on which they already know they will make a lot less money. The only scenario where lowering the buyers agents' commission might not affect the sale of the house is if it is such a screamingly good deal someone buys it sight unseen in cash. And even then you are potentially losing out on other clients.

Numbers Man

  • Guest
Re: House Not Selling - Lower price now, or FSBO later ?
« Reply #8 on: October 07, 2013, 11:21:00 AM »
You are currently chasing the market downward since you over priced your property in the first place. You are paying dearly with all the carrying costs of carrying a mortgage and other costs associated with owning a house. Since your house is not in good shape, you should be the lowest priced house in your category. Lower your price.

As a buyer back in 2009 & 2010, I can't tell you how many houses I walked out of that didn't have the amenities that one would expect at the price point I was looking at, but priced as a turn key house.