Choosing to sell for a loss
Originally appeared in Bay Area News Group publications on March 9, 2012
In the mid-nineties, I had a listing where the seller did not receive any money back. Instead, he had to write a large check at close of escrow. As years passed, especially the rip-roaring seller’s market of 2004 through 2006, it seemed unlikely that could happen again. Times have changed.
Recent reports indicate that at the end of 2011 there were 11.1 million U.S. homeowners with mortgages higher than their homes were worth. That was an almost four percent increase from the previous three months.
Rather than choosing foreclosure, a short sale or deed-in-lieu, there are hordes of potential sellers stressing over whether they should, or even if they can, write a check in order to sell. I have spoken with many of them in the past three years.
Prices are down
One of my previous articles discussed how home values have dropped in our area. Even the most popular neighborhoods have not been spared. Those considered less desirable have been hardest hit.
As an example, I cited how Rockridge selling prices for two bedroom houses have decreased by approximately 19 percent from the peak, while in well-regarded Glenview, values are down more than 28 percent in that same category. Whenever I receive a call from a homeowner who has bought in the last eight years or so, I do this type of analysis for the property.
Doing the sensible thing
Some folks see no options; they have little or no income or cash reserves. One way or another, their home will end up as a distressed sale. Conversely, property owners whose values have diminished to well below what they paid, but are in a position to tap their own funds in order to sell, have a choice.
In some of these instances, the value is way down, but there is a low enough loan, or none at all, that the seller can absorb the loss. Regardless, the financial hit hurts and deciding what to do is not easy.
Losing money – an emotional issue
From a seller’s perspective, opting to sell for a huge loss is difficult enough. Seeing the home sit unsold when the asking price is more than $100,000 below what he paid is even more disappointing. Unfortunately, this is reality for a number of sellers today.
It is regrettable that some agents claim how much a seller paid for his home, or how much he is losing, is insignificant. After all, they reason, a purchase price in the past has no bearing on how much a buyer might be willing to pay today in a totally different market.
Although the conclusion is accurate, there are two important elements missing from this attitude. First, Realtors are in the people business. Houses are simply the product. It is important for agents to be especially sensitive to the emotions of those who are suffering because of this severe market downturn. Failing to do so, in my opinion, is not only callous, it is bad business.
That is exactly what I was thinking the other day, when an agent came to look at my new listing. I told him the seller had, six years ago, paid $125,000 more than the current asking price. His response was, “That is irrelevant and will not matter to my buyer.”
This statement told me the agent did not understand the second element, i.e., knowing how much the seller paid in the past can give the buyer perspective on how fortunate he is to be in the market today. I believe that real estate salespeople who are unfeeling about the seller’s situation may be concentrating too much on making a sale and not enough on how buyers and sellers react as people.
Buying again?
Interestingly, dispassionate individuals realize being the victim of bad timing does not mean real estate is a bad investment. In fact, some of these sellers who have lost substantial dollars are buying again. That could turn out to be a wise decision considering today’s low prices and record-low interest rates.
Final thoughts
Real estate is cyclical. Because of that, depending on timing, many folks have made hefty sums; others have lost much or will lose if they choose to sell. Although few real estate licensees are psychologists, those in our business need to act with compassion toward fellow human beings who are experiencing adversity.
Related Articles:
Buyers and Sellers Need Analysis of Research