Slow Sale in a Hot Market
The real estate market is going crazy everywhere these days. With appreciation in the double digits and interest rates plunging, almost everyone we know seems to be moving, refinancing or looking to sell. We decided to sell one of our single family homes. Instead of selling in the first week, it took more than double the market average to receive an offer that would lead to the final sale.
The property is a four bedroom, three bath ranch with a garden basement. It was located near the highways, close to the commuter train and close to a network of running and walking trails.
Like most of our properties, the interior was most new — a roof less than 10 years old, a new furnace, a/c, water heater and new wood floors and carpeting on the main level. The previous owner had done most of the work updating bathrooms and we had bought all new kitchen appliances. The outdoor patio had been redone and it featured both a barbeque and a fire pit. The place was truly move-in ready.
Average time on the market was about 9 days and we decided to list the property at the end of April, hoping one open house and a few dozen offers were in the bag.
Our open house wound up being a bit of a flop as only one real estate website actually advertised the open house. It was some kind of computer glitch, according to our agent. We had a handful of buyers come to the house over two days. Disappointment was an understatement. Fortunately, several potential buyers did book appointments over the next week so we tried to stay optimistic. We hoped the market wouldn’t view the additional days on the market as a home with red flags. A couple of houses surrounding ours did receive offers and were pending by the end of that same weekend.
Our agent asked us to be patient and assured us that the property was priced right. She said we could re-evaluate after a dozen potentials walked through.
So why does a move-in ready home sit on the market when appreciation is high, interest rates are low and so is inventory?
We had a few guesses and some feedback on the property included:
- Floor plan not preferred
- Some wanted three bedrooms on the main floor
- A couple didn’t like an awkward step that led from the garage – to get to the kitchen or the living room, you had to step up to the left or to the right
- The biggest bedroom and largest bathroom was on the lower level
A fellow investor sold a property with a basement level master bedroom in the past few years so I reached out to her for lessons learned and any ideas of how she eventually sold hers. She is also a real estate agent and ran some comps of her own. The market was all over the place on properties of our size, but she ultimately advised that the price may need to be dropped to move it to a sale.
With houses selling high above asking prices due to low interest rates and limited supply, we were looking at an increase of 37 percent over the cost we paid for the property several years ago. Dropping the price wasn’t going to kill us, but as experienced real estate investors, we felt like we had missed the mark.
Our agent continued to advise patience and said she had seen many properties sit for 30 days and still get their asking price. She said the basement master was a “unique feature” and we just needed to wait for the right buyer to come.
She also felt out the agents who had visited to see if the price did drop, would it pique the interest of any of their buyers who had walked through. As you can imagine, the agents’ responses were vague at best.
Good things Come to Those who Wait
On the 23rd day on the market, we had one buyer planning to put in an offer and another who was interested, but had just started their search. The latter party ultimately put in an offer and we had a little bit of a bidding war.
We chose the buyer with the best offer: a higher down payment, an appraisal escalation up to $15,000, if there was an appraisal gap, and an inspection that waived anything but health and safety issues. The winning bid was a mere $5,000 over the asking price but we were not complaining. We breathed a little easier once the earnest money was in and our listing switched to pending.
Then the path to closing began. This included:
- Our completing the property disclosures (lead paint, any work performed on the house, etc. etc)
- The buyer hiring an inspector to review the property
- Record and off-record title review performed by the Title Company
- Inspection Objection Deadline – basically the buyer tells us if they want any concessions based on the inspection. In our case, these were expected only to pertain to health and safety issues
- Record and title objections – if anything was found on the house that was unusual it would need to be resolved by us or insured by the title company. The typical item is just any mortgage or loan on the property
- Title Resolution – date to clear up any issues
- New Loan Termination – the buyer’s lender would provide documentation that the buyer was cleared to close on the property
- Closing date – official handoff of the property from us to the buyer
Many of these steps are driven by the lender as well as laws by state. If you purchase something in cash, you and your agent have more flexibility on what you should require discuss the seller to complete or allow you to perform before closing.
The only item from above that required additional action was the inspection report. With most of the property having new systems, it turned out that the sewer line that led to the street had some cracks and a low lying area where it connected to the public line.
I immediately called contractors to find out what the ballpark price would be to do a full replacement. It’s common practice for a buyer to ask for a credit on the purchase price and we wanted to be ready to intelligently negotiate what that credit would be. I requested three quotes, but one contractor said they were too busy to do the work. I had two quotes with the highest just under $12,000.
I provided the scoping video and report created by the inspector to help them price the work. I asked if the buyer had also called them (one contractor contact was provided by the inspector and one from a neighbor who recently did similar work), but neither had heard from anyone else.
Our agent worked with the buyer’s agent and the buyers wanted us to get the work done before they moved in. Given that the purchase would not be complete or guaranteed until closing day, we were not willing to perform a large repair prior to closing. Our agent worked it out so that the Title Company would issue the buyer a check at closing to pay for the work, which was based on proposals I had found. The buyers needed to sign the contract directly with the contractor. The buyer accepted the quote we got from the lowest bidder and did not request anything else regarding that matter.
If you are purchasing a property, I do not recommend this route. If you are going to live somewhere, you want to be in control of the work. That means getting your own quotes to:
- Verify the scope so you know want or that you believe the inspector required
- Ensure the price proposed is in line with the work to be performed
The buyers didn’t do any diligence. I was definitely not trying to screw them. However, if I was buying a property, I would not leave it to the outgoing party to make sure things were done properly.
Fortunately, the contractor I picked was understanding of the process created by the buyer. After I got the formal proposal, I provided the contact info for the buyers for the contractor to send directly. Their signing of the document would allow them to lock in the price, schedule, and put all the warranties in their names.
The closing was completed last week and we received the proceeds from the purchase the very same day. This was our third property sale since 2016 and we continue to learn so much with every transaction. Now we have a wad of cash that we’re sitting on and strategizing the best ways to deploy it for our future real estate transactions.
GET HOME SELLING SMART
- CNBC: Why Houses Are So Expensive in the US
- Rocket Mortgage: What Is An Escalation Clause And When Is The Time To Use One?
- Investopedia: 12 Steps of a Real Estate Closing
Have a property-selling story you’d like to share? E-mail [email protected] or leave a comment below.