The sold price is all that matters

The Sold Price is all that matters 

A thought came to mind this week as our team was negotiating with a motivated seller that I wanted to share with each of you as it is very, very common to come across this especially in single-family residential real estate

The only price that matters when it comes to real estate is the sold price. Let me expand on what that means and ill also share with you below our email reply to this seller to put it into context. 

When working with most residential sellers it's a very common belief or practice that they will very much base their pricing on what is currently listed on the market, or the notorious “Zillow” says my house is worth $1Trillion dollars and they will defend this as the truth. I'm not sure where as consumers we learned this practice from but the listing price does not dictate the value of the real estate. The only price that does is sold comps. 

As investors you must be disciplined and not make emotional decisions you must make ones based on logic and facts. When you purchase a home to flip for example you renovate it and get ready to resell it the new buyer is likely going to have a mortgage and the mortgage is going to require an appraisal, the appraiser is going to look at a wide array of conditions however the most important and all that matters is what is sold, if we don't have sold comps to support our price it ultimately is not going to appraise and the deal won't close. 

Let me give you another example why we only use sold comps, you could have a shiny object and want $1,000 for it , however it makes no difference what you want for it , it’s what is a buyer willing to pay that determines its worth, that buyer may only be willing to pay $10 for your shiny object . Well in real estate there are documented cases of “shiny objects worth” those are sold comps only. Not the fantasy land pricing most sellers want. 

In comping homes, we also always look at what's active and what's pending but for a different reason. We look at what's active to tell us a few things 1) to make sure we not priced over our competition and 2) to see what homes are not selling that tells us they are overpriced and we shouldn't be priced there for sure. We look at what's pending because it shows us what price the property went pending at though we don't know what it ultimately sold at until it's posted but this is a good indicator they got to a price that caused it to go pending. 

Despite what Realtors will tell you there is not 21-1,000 point action plan that they are going to use to sell your home, What sells a home? Sticking it in a database for the masses to see i.e. the MLS at a price that causes it to sell. Price if what sells property period.  

I figured I would share our reply to the seller to help you guys put it into context this is something you will have to deal with often when it comes to negating deals and you should have a solid 2-3 ways how to address it. This particular seller happened to be a  high analytical and the email is geared towards that in response. If the seller was a driver personality, for example, it would be worded a lot different. 

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Reply example to seller : (seller was saying his property was worth that of his neighbors which was currently listed at _________________ though has been on the market and has not sold) 

___________, I can certainly appreciate that and thanks for the quick follow up and most importantly the consideration. I was able to see and did review the property at ______________ahead of making the offer we look at everything currently on the market, off the market (Sold) and pending. When it comes to ultimately selling the home the only comps that matter and the only comps we can go by are what has sold. As that is all an appraiser and bank (for the new buyer) will look at. We only take into consideration and earmark what's on market or pending to make sure we are not priced above our competition and to also see what pricing is not working. For example, if a home has been on the market an unusual or for a long period of time we know their price is too high. In this market, a property should sell within 1-2 weeks when priced correctly. You will see most listings that take longer to sell start high and then eventually drop to a price that causes it to sell. Unfortunately, ______________ is not a comp until it is sold and we can see what it ultimately sold at and price per sq ft. It could bring your value then up or down. 

Also when it comes to extra land/larger lot it's tricky as some people like the extra land and space most don't so it could be a positive or a negative our experience and the market has shown that people are trending away from and in most cases don't want to take care of extra land and space, this is why you also see so many new developments where the house takes up most of the yard . If we have a pool of say 100 buyers looking for a home that pool may shrink by70% leaving just 30% who are ok with a much larger lot and that ultimately translates to a slight reduction in price to appeal to them. 

At the end of the day all we can go by are the facts those being what has sold and closed out as that is all an appraiser is going to look at, I am sure when you purchased you home you also went through a similar process and an appraisal, this time is just like that.  I cannot speculate as to what will the properties currently on the market sell for and close at though some investors are speculators we are not in that business. The trend is showing and you may agree as this is why you have chosen to sell, real estate is at an all-time high and many suspect the market to shift down in the very near future, real estate as you know is a cyclical business and we are at the very tail end of a high. Any speculation on a higher value would be irresponsible as an investor on my part in this market that could drop very quickly , soon. 

Though I certainly appreciate your opinion and can see your side as well. 

At the end of the day, I have to trust my experience and the numbers and they currently show this property reselling between $150-165 per sq ft once renovated and we plan on doing a little higher end renovation then even the one at ______________. 

I understand it also has to make sense for you and there are advantages and disadvantages to working with an offer like ours or going on the open market on both sides at the end of the day we want what's best for you . 

I can come up to $__________ max is the most I can do over $________ the risk and exposure to capital is  too much for me between purchase, closing and renovation i'll be about _________into this home which leaves little margin for error if something happens during the renovation or the market shifts in addition to the holding cost at $________ just so you know what I am looking at on my end a resale of $_________ with $_________ into the home I'll be about $________ into the house then with closing cost. Then on resale I have 6% realtor commissions, transfer tax, title policy and work about 8% min leaving me with all goes well about $__________ in profit max or only ___% or _______% return on capital which is well below what we prefer to see at __________% and our min of ________% . I can't go any higher

Keep me posted either way ,