Yesterday I received a phone call from a competitor in my Destin Florida real estate market. The agent had a short sale condo listed in the same building as I did, and questioned why my list price of $260,000 was $40,000 less than his unit. He asked, “Is that price approved by the bank?” I told him no, as most short sale lenders do not pre-approve prices. He then asked if I truly thought I could get it approved, as he was hesitant to “chase” my price and match or beat it with his listing. I thought about that, and the factors that go into short sale pricing.
When pricing any real estate listing, one must consider several standard factors. Briefly:
1. Competition: Similar properties for sale may be overpriced, since they have failed to sell
2. Pendings: Properties under contract indicate what price entices a buyer to purchase
3. Solds: What price buyers were actually willing to pay
4. Expireds: What price was rejected by the market place
The obvious strategy is to price a property to be the best value in the category. Further, once a property is listed for sale, prices should be adjusted upon the following circumstances:
1. It has been on the market for a reasonable period of time with no showings (buyers rejecting “price)
2. It has had many showings but no contract (buyers finding better value in price range)
With a short sale, there is the final factor- the “X Factor”. The “X Factor” is the price the short sale lender comes up with after receiving a purchase and sale agreement. This is the price that can make or break a sale (although it can sometimes be challenged). The lender price is based on a Broker Price Opinion (BPO) or appraisal. This third-party opinion changes the game and actually may distort markets. The “X Factor” price opinion may come from an agent with one year experience who has signed up on a website to perform BPO’s. The price opinion may come from one appraiser who does not adjust for inventory levels. In the example of my condo listing, I may have “crossed the imaginary line” of what a bank may approve. The question lingers, at what point do you disregard the “X Factor” guess, and adjust the price to entice a buyer.
In the case above, after 7 months of gentle price reductions from $329,000 to $260,000 – the unit finally had a showing this weekend, and is getting an offer today. There are 2085 condos for sale in Destin. Less than 2% of them sell per month and there is a 5-year inventory. There are 120 units for sale in the subject’s complex, and the last one sold in December for $300,000. The offer price should be around $260,000- the list price. Let the “X Factor” games begin.