painting by Sergey Gusev
April has long held some significant dates for me. My wife’s birthday is April 9th. My daughter’s is April 1st. How I was hoping she’d also be born on the 9th so I’d have only one date to remember.
April 15th is Tax Day here in the USA. And now I have April 8th: The day our house finally sold. What a relief. What a saga.
A couple of weeks back I was sharing this tale with my pal, The Mad Fientist. He owns a house and, like the smart financial guy he is, he is thinking in advance about how to unload it when the time comes. Unless you plan to die in yours, you should too. It’s never cheap and it is not always easy.
Looking at our Settlement Statement, it cost us $21,000/5.68% to get out of the place, mostly the real estate commission followed by various taxes and fees assessed by the folks with a hand in the transaction. Of course, this doesn’t include the $5,500 we spent staging the place. Oh, and it cost the buyers over 15k to get into it.
That’s over $40,000 in transaction costs.
Lots of folks make money when a house changes hands. Just not you. This ain’t buying or selling no Index Fund.
But if the cost of selling is daunting, at least the process is tedious and unpleasant. You’re going to have to…
…kiss a lot of frogs and…
- get the place spotless.
- keep the place spotless.
- understand you are no longer living in your home. You are now living in a museum version of your home.
- be ready to scramble to get it put together and ready to show at a moment’s notice.
- understand every time it is going to have to be perfect. You never know which showing is THE showing.
- accept an endless parade of strangers tramping thru the place. Nothing like coming home after a showing to find some potential ‘buyer’ took a crap in your master bedroom toilet. If they flush, by no means a guarantee, you’ll still be able to tell by the stink.
- be ready for the Feedback. That is, the constant parade of people telling you what’s wrong with your house.
- accept uncertainty. There is absolutely no guarantee that all this effort and grief will get you free. It took us two years.
We first started trying to sell in the spring of 2011. In late March we listed it at $434,900, knowing that was an aggressively high price. My thinking was this would give us room to come down substantially in the negotiations, the idea being that buyers like to feel they got a great deal. I know I do.
Of course, this felt low to us. At the peak, houses like ours were selling at 550k+.
Now, I’m rational enough to know that was then and this was now and then matters now not even a tiny bit. Still, we are all also emotional beings subject to what the psychologists call “anchoring.” And my anchor was way up there at 550k. So in my head I’d already come down over 100 grand. Such are the fevered imaginings of the anchored seller.
Buyers, of course, were having none of it.
We had a steady stream of showings, but nary a nibble. By now we knew the market was continuing to fall and we needed to catch up. May 1st we lowered the price to $415,000 in what we thought was an aggressive step. It was, but not aggressive enough. The months and the showings ground painfully on. Nothing.
Finally, we pulled it off the market and headed to South America for the summer. Some things are more important than unloading the house and by now we are now counting our blessings that selling for us is optional.
Upon our return, and after assessing our options, we re-listed it in September with the heartbreakingly low price of $389,000. Showings trickled in, but no offers. In December we pulled it again.
More reassessment and analysis. We were getting a few showings, but no interest. Clearly we needed to take this process to the next level. We came up with a three-step plan:
- Staging. If you unfamiliar with this process, as we were, here’s the deal. Professionals come in, in our case two very artistic women, and proceed to very nicely explain to you what hideous taste you have and how they can make the place appeal to today’s demanding, hip and stylish buyers. Which, clearly, you are not. The most disturbing thing is, they are correct. Two weeks and $5500 later it is done and, oh my. The place really does look spectacular.
- A new realtor. After spending all this money, We wanted a fresh approach and to be sure the marketing was top-notch. We found Blanche (not her real name). The brochure she produced and the pictures she had taken were souvenir quality. (I, in fact, still have one as a souvenir.)
- And, of course, a new and still lower price: $359,900.
Staging, excitement, a new realtor, slick marketing, 359,900. I figured it would sell in a week. So sure in fact was I, I put down a non-refundable deposit on an apartment.
Showings blossom, but still no offers. The weeks drag on. We lower the price to $355,000. Blanche gets discouraged. Each conversation now begins with her litany of what is wrong with the house and why this is not her fault. What in my world we call CYA (cover your ass) mode. The listing expires. We head back to South America for the summer.
Returning to New Hampshire it is now the Fall of 2012 and we are burned out on this house selling business. Or, more accurately, this house showing business.
We’re now down a cool 80 grand from where we started. Except for the first, each time we went with the lowest price suggested by any of the realtors we interviewed, looking for a quick sale. But we’ve not been able to get ahead of the falling prices. We decide to forget about it for a while. Maybe revisit the idea in the Fall of 2013.
But time heals wounds quickly and by December we are already talking about taking another run at it. We really are done with the hassles homeownership and ready to move on. For our remaining time in NH we want to be in the city, renting and walkable.
By late January we are once again interviewing realtors. When Blanche took the listing the year before she boldly said: “If I can’t get this sold, you shouldn’t hire me again.” We take her at her word.
This time we notice something different. Realtors are now no longer recommending a specific price, but rather a range. It occurs to me that recommending a price to home sellers is a tricky business. Too low and you don’t get the listing. Too high and the place doesn’t sell. Or it takes months to sell, which is not in the realtor’s best interest. Better to move it and move on to the next.
Ann (her real name) impresses us the most and her suggested range is from 340k to 355k. We go with $339,900.
We’re now down a cool 95 grand from where we started.
My thinking is that we’ve been chasing a falling market and the time has come to get under it. At this level I’m pretty sure we are and, I’m hoping, if by too much we’ll attract multiple bids.
Once again we spit-shine the joint and on Thursday February 14th, Valentine’s Day, it goes on the market. By Sunday we will have had over 45 showings and two offers. What a zoo. If I’d had any idea, I’d have left town for the weekend.
The first offer comes in Saturday morning and it is for 330k. At this point, I figure the house is sold. We are 10k apart and after the negotiation dances will likely land at what I guess to be the buyer’s real price of 335k. Not what I want, but what I can accept. They want a response by Sunday.
By Saturday afternoon we get word that a second offer is coming. The day has had wall-to-wall showings. We go to bed feeling pretty good about things.
Sunday morning I open an email sent from Ann late the night before. It reads:
“Attached is the second offer. Let me know what you think.” Mmm. What fresh disappointment is this? I open the attachment and go right to the price line:
I sip my coffee. I look again. Still:
I start reading, looking for the ugly contingencies. There aren’t any. I look again at the price:
I figure I better print this out. I do. There, in ink and on paper:
I call Ann. What do you think? she says.
I think, I say, I’d like to know if bidder #1 would like to up their offer.
Evidently the way this works is that active bidders who have been outbid are contacted. They are told there is a higher bid and they are asked to put forth their “final and best” offer. But what is interesting, and what I don’t entirely understand, is they are not told how much the higher bid is. So they have no way of knowing where the bar is.
In our case the bar is now $15,000 over the asking price, 25k more than their original offer. Probably far more than they’d step up to from their starting 330k, even if they knew. Not knowing, they come back with 337k. An aggressive bump in their minds I’m sure, but bidding blind they never really have a chance. It seems unfair.
Sunday evening we accept the $355,000.
Over the next few weeks, as is often the case, we get to know our buyers a bit. They are a very nice young couple with two little girls right around the same age our daughter was when we bought the place. He’s taken a job that is moving them from Philadelphia. She grew up in our little town, and her parents still live here. So she’s coming home and the kids and grandparents will have far more time together. No wonder they are excited.
They knew our house was “the one” the moment they saw it. She loved it for all the same reasons I did back in the day:
It’s in a kid-friendly neighborhood, but the house is set back and on a hill. The woods and wetlands are behind and the pond is the view from the front. Community with privacy, except for the wildlife that comes to visit.
So the old place is passing in to good and appreciative hands. It surprises me, but turns out this crusty old financial geek likes knowing that. Who’d-a guessed?
Having that first offer on the table is what, I thought, motivated these folks to up their game. Turns out, they didn’t even know about it.
Instead their motivation was that their own house had sold in a single weekend for over the asking price, ours was packed with other potential buyers when they saw it and they figured it would go quickly. They wanted it and they put in an offer they figured would assure them they got it. It worked.
For us, listing at $339,900 was a gamble. As it happens, that worked too. But for all the showings and excitement that weekend, we only had two offers and only one of those was over asking price. Luck played a role. It always does. Our buyers could have gotten sick, or busy or any number of things and missed ever seeing the place.
My guess is had we listed 10k higher, an option we considered, it would have been too high for the first people and the second, who really wanted the house, would have simply made a full price offer. So the gamble was worth 5k. But who knows? Maybe they’d have come in at 360k.
More important is the analysis of what I should have done differently when we first listed it two years ago. I made two mistakes and failed to appreciate something critical. The two mistakes were:
- Pricing at a level I knew was high in a market I knew was falling. I did so figuring that buyers would need to get a big discount to pull the trigger. I know I do. But that’s just me.
- Not fully appreciating the fact that buyers will pay more than asking for something they want and that they think is under-priced. It’s something I have never been able to bring myself to do. But that’s just me.
So, more generally, my mistake was in thinking potential buyers think like me. You’d think by know I’d know. Very few people think like me about much of anything.
The thing I failed to appreciate was just how fast the market was falling, and how important it was to get ahead of (or under, if you prefer) it.
Looking back, if I had a do-over, in the spring of 2011 I’d have started at 389k and skipped the 5.5k staging cost. That would have been below even the lowest suggested price any realtor presented. This would have made it, at the time, a very compelling deal and very likely would have gotten it sold in that first round.
I would have saved myself the work, frustration and grief of the endless and fruitless showings. I’d also have had 39.5k more in my pocket, and that’s money that would have been very profitably invested during these past two years. VGSLX, the REIT index fund where I would have then and have now invested the sale proceeds, is up 29% in that time. That’s another 11k missed.
I’m not sure what sweeping lessons can be drawn from all this for you. Who knows? In a different market my “price it high and negotiate it down” initial approach might have lined my pockets even more.
Night Rain on the Window
Photo by Amanda Means
But sitting here now with the night rain beading on my apartment window at 3am on this Thursday morning I sure wish I’d priced it low, let the market bid it up, got it done quickly and moved on with my life two years sooner.