How To Value Real Estate Investments – How Much Is My House Worth?
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Read Transcript for “How To Value Real Estate Investments – How Much Is My House Worth?”
If you’re having a hard time selling a property, there’s a good chance the problem is the price. Let me explain how to price your property properly so that it sells.
“I had a property listed in Wilmington for a little over a million dollars. Its 4400 square feet with a number of updates, located on a marsh land frontage with water access. In this market, my questions are, since the present owners have collected many times, e.g. furniture, bric-a-brac, over the years. They were reluctant to store all of that stuff to expedite a sale. How can I convince them that they should do so? Also, they really need to net over a million dollars so they can’t reduce the price too much, even in the down market. Since price reduction is not an option, what other sales tools may be effective? These are my questions. I’m doing the ordinary stuff, e.g. MLS, advertising, homes and land magazine advertising, web based advertising to realtors, open houses, etc. These are not really related directly to real estate investing but to real estate sales, so I’m not really sure you’re going to field these types of questions in your videos.” – Charles Matts, Wilmington, North Carolina
Joe: I think these are good questions, and it’s a good question for real estate investors as well because what you don’t understand here is something pretty fundamental – all of the things that you’re doing, i.e. all of the magazine advertising, the web advertising, the homes and land, the MLS – the reason that you’re doing that is to get more leads. It’s not to sell the property. You may think it’s to sell the property. Your seller may think that it’s to sell the property, but the main purpose of it for any realtor who understands marketing is to get more leads so that they can find more buyers and sellers. Most of the people that respond to these kinds of ads don’t buy the property they’re responding to.
Joe: So don’t go at it with that idea in mind. Go at it as ‘How can I monetize these ads to get more business?’ The big thing that I think you’re missing here (and I don’t mean any disrespect here. You may have been a realtor for a long time here and you probably already now this on some level) is that the only thing that matters is price. Nothing else matters. Location doesn’t matter, i.e. whether it’s in a marsh, etc. It doesn’t matter if there’s a bunch of junk in the house. It doesn’t matter what kind of condition it’s in. It doesn’t matter what location it’s in. None of that matters. All that matters is the price.
Joe: Price can fix anything. It’s not ‘Location, location, location’ – its ‘Price, price, price.’ – no matter what. Now, location will determine what the price is. If you buy in California, you’re going to pay four or five times as much as you do in Indiana for the same size and condition house. So, location does make a difference in the price but the price makes a difference in whether or not it’s going to sell. You have to price it based on the market.
Joe: I’m going to give you some statistics here, and these are very important statistics for investors or real estate investors to understand so that they can help people understand how to price a property, and so that you can understand how to price a property.
Joe: I was a realtor for about eight years. I’ve had a realtor’s license since 1986. I still have a broker’s license. I don’t use it. I don’t list properties. But I used to. I used this as a realtor. I used to tell this to my sellers when I had a property listed because I wanted them to understand that price was everything. It didn’t matter that they didn’t want to put their junk away. It’s okay – you don’t have to put your junk away – you just need to lower your price (that got them to put their junk away, by the way). It didn’t matter that you need a million dollars. Nobody’s going to give you a million dollars if the property’s not worth that. They don’t care what you need. All they care about is the price.
Joe: Let me give you these statistics. These are national statistics from the National Association Of Realtors, and I think they’re very effective. These are four properties that are listed in the MLS, which is the only way to sell a property for cash, by the way – you don’t sell it for sale by owner, you don’t sell a property for sale by owner and expect to get full price – you put them in the MLS. One third of all the houses in the MLS that are listed in the MLS for sale do not sell. They become expired listings. So that means for three that go in, one doesn’t sell that’s been on the market for six months.
Joe: For the properties that do sell, 40% of those sell within the first 30 days and they sell for 97% of asking price. So if they’re priced properly, they’re going to sell very close to asking price within 30 days. The second thirty days, only 7% sell. The third thirty days, only 7% sells. The fourth thirty days, it jumps up to 20%. 20% of the properties sell after 90 days – why is that? It’s because on average, people lower their price after 90 days, so that tells us right off the bat that if its priced right, it’s going to sell real close to asking price and it’s going to sell within 30 to 45 days. If it’s not priced right, it’s not going to sell at all; nobody’s even going to make an offer on the property.
Joe: So, that brings us to a concept called ‘threshold pricing.’ Buyers look at between 18 and 23 houses before they buy a house on average. So that means your house is competing with 18 to 23 properties. These aren’t just random properties they’re competing with. They’re competing with comparable properties in the same area in the same price range, so if one of those 18 to 23 other properties are a better deal than what you’ve got, then you’re going to help sell that property – you’re going to help your competition because you priced your property improperly.
Joe: The idea is to get within the threshold so that you’re competing with a bunch of properties that you can beat. Let’s take an average price on a property. Let’s say it’s a $150,000 property. It doesn’t matter if it’s a $500,000 property or a $150,000 property; just a nice round number. You’re competing on average with people between $145,000 and $150,000. Those are going to be your main competition. If you don’t sell your property and 30 to 45 days goes by and it’s not sold, you need to drop your price down to $145,000. You don’t drop it down to 147 because you’re still competing with the properties between 145 and 150. If you drop it to 145, now you’re competing with properties between 140 and 145.
Joe: That’s threshold pricing – making sure that your property is listed and put it on a round figure; always list it on a round figure, e.g. 145, 150, 155, 175, 200, 225, etc. Always put it on a $5,000 number – a round figure, because that’s the way agents pull up listings. They’ll pull them up and say, ‘Show me anything between 125 and 150. Show me anything between 250 to 350.’ They’re going to deal in round numbers, so don’t put it at 149 because then you won’t get pulled up in the search between 150 and 175. You’ll only get pulled up in the searches between 125 and 150. You want to be in as many searches as possible.
Joe: These are such important ideas when it comes to pricing. It’ll help you with your listings. If you’re an investor, it’ll help you talk to your sellers to help them understand the value of a property, and it’ll also help you understand when you’re trying to sell your property, why it’s not selling – it’s always the price. Thanks, now. Bye, bye.