Challenging Sellers and Understanding Fair Market Value
As a veteran land broker, I deal with seller clients often that I need to provide an RFP (Request for Proposal), basically illustrating how or why myself and HomeLand Properties are the best choice for real estate marketing services.
This often occurs again with the same seller client in the event their property does not sell and/or takes a longer than an average amount of time to sell.
First, let’s get a definition nailed down.
Fair Market Value… (from appraisalinstitute.org)
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
- Buyer and seller are typically motivated;
- Both parties are well informed or well advised, and acting in what they consider their best interests;
- A reasonable time is allowed for exposure in the open market;
- Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
- The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
The reason I emphasize “time” above is because that is the hardest factor to determine in the varying real estate markets. So many variables have to be considered. It becomes the broker’s/agent’s best estimate based on experience, researching comparable sales, and the days on the market associated with said sales (i.e. most land markets have an average time frame to achieve fair market value, which is between 3 months and 24 months – that’s a big range and is effected by location, size, topography, access, etc.). Of note, realtors that boast of selling a property within 10 days of listing may have done their client a disservice by pricing the property too low. We’ll save that elaboration for another blog.
Assuming the seller understands “Fair Market Value” and the estimated time associated therewith, it makes sense to reconcile the following:
As an analogy, if the real estate market represents a ball and your realtor represents a bucket. Find a realtor whose bucket can cover the ball. Many sellers do the opposite (i.e. hiring your neighbor, your cousin, your sister-in-law who has a license). The point being that the realtor that can cover the market leaves the seller with only one result over time (said time being typically longer than the fair market value average time)… PRICE! Price is ALWAYS the issue when you have a realtor that can cover the market (HomeLand Properties). You can change realtors once, twice, or twenty times. The result generally won’t come until the price is adjusted (down) to meet “the market.” So often sellers change realtors thinking the non-interest or inactivity is due to the realtor, and at the same time, reduce price prompting the property to sell. The second realtor gains from the first realtor’s efforts but actually did less. I’m always encouraged when I get a listing that has been on the market with another realtor. But, it’s usually because the prior realtor did a disservice to the client by being unqualified to price and/or expose the property to the current market.
I have experienced this many times. I have made recommendations to sellers for list prices only to list at a higher price (because the seller insisted), witness the property not sell, then the seller lists with another realtor, reduces the price, and the property sells near the price I initially recommended. So, I gave the property all the exposure, but the second realtor gains from the price reduction. Please understand that we turn down many listing opportunities that we consider overpriced by the seller when compared to our recommendations. It is HLP’s practice and policy to develop and list properties close to, or slightly above, market value, especially in the ever appreciating Texas market(s). (We cover 40 counties in East Texas.)
Takeaway: IF YOUR REALTOR COVERS THE MARKET AND YOUR PROPERTY DOES NOT SELL WITHIN THE ESTIMATED TIME DEFINED UNDER FAIR MARKET VALUE, IT IS NOT YOUR REALTOR’S FAULT. IT’S THE PRICE!
Of course, there are many other factors for choosing a realtor other than the ability to cover the market. Experience, knowledge, results, etc. are also very important. Choose wisely when considering who and what company will represent one of your most valuable assets. A poor choice can be detrimental to the time value of money, as well as taint the reputation of the property. And if you need a solid answer, please contact us. Thank you for reading.
Andy Flack, Broker/ALC
HomeLand Properties, Inc.