The Texas Residential Real Estate Market is Hot
For most families, their home is the single largest and most appreciable investment they will make. The idea is simple, buy a home, pay your mortgage, make improvements, build equity. In several Texas markets, the professional real estate industry is struggling to accurately price homes. Every seller and every real estate agent earnestly desires to sell homes for the maximum amount the market will bear. Real Estate agents walk a fine line between underpricing and overpricing. On one hand, underpricing the real estate agent risks losing thousands of dollars of their client’s money and commissions. On the other hand, if the agent overprices a property it goes stale and does not sell in an appropriate time.
Hot real estate markets are a blessing and a curse. Our staff recently compiled and studied data from several of the hottest residential real estate markets in the DFW metroplex. What we found was astonishing and should be worrisome for 65% of homeowners in Frisco who are in the process of selling their homes. Depending on the community, 37-65% of the homes sold were priced lower than they actually sold for. Our data, provided by North Texas Real Estate Information Systems, showed pricing discrepancies from just a few hundred dollars to as much as $49,000 for single-family homes.
Realtors Struggle with Pricing
You may ask “Are Real Estate Agents really this inept?” Absolutely not. The problem, in this case, is not the real estate professional. It is the speed of the market. Seller’s need to understand that real estate professionals use “Sold” comparables to decipher market data and ultimately recommend a listing price, which is the best way to accurately establish a marketable value. The problem is the sold price is not reported until the transaction closes. If a home closes today it is highly likely that the price was negotiated 30, 45 or even 60 days prior to today. Each transaction has many moving pieces such as inspections, appraisals, and financing, not to mention the speed at which a seller is willing to surrender possession. When the real estate professional meets with a prospective seller tomorrow and uses the sale that closed today the market data may provide an illusion of freshness but in real-world terms it is 30-60 days old. These markets are simply moving upward so rapidly that the sales data cannot accurately portray market value.
Timing is Everything
Our staff also concluded that the average length of time a home is on the market is just over 8 days. Many properties experience only 1-3 days on the market, few see the 20th day on the market. Our staff actually threw out any property that was on the market for over 35 days, as it was a sign of extreme overpricing or total undesirability in the marketplace for some reason. Out of 110 reviewed properties, we threw out only four because of the 35 day cut-off. When property is selling in less than 72 hours sellers are only receiving offers from a limited number of the actual interested parties in the market. In layman’s terms, the property is not given an opportunity to ferment and get full exposure in the marketplace. Seller’s in these markets are like college kids getting drunk on Boone’s Farms Strawberry wine instead of slowing down, investing a short amount of time and enjoying the full bouquet of a 2005 Château Pétrus. While both get the job done, you’ll feel better in the morning knowing you slowed down and experienced the latter.
What Can Sellers Do?
If professional real estate agents are behind the curve, what is a seller to do? Simple, take control of the process. Let the market work for you and allow the buyers an opportunity to financially compete to own your property. Market your home by auction. Yes, by auction. Our data shows that 40% of homes in Collin County, Texas alone are being sold by auction. Just not in the traditional sense. When real estate professionals list a home and sell it for more than the asking price, with multiple offers they are selling by auction. The problem for sellers is you have listing specialists conducting auctions, much like going to your Proctologist when you need to go to the Dentist for a toothache. Both service providers are specialists, both have medical licenses, both have your good health in their best interest but they should not be interchangeable. When you think about it, do you really your Proctologist and Dentist to be the same person? Of course not. You should not want your listing agent to be your auctioneer either.
Auctioneers have the unique experience and education to handle the problems found in hot seller’s markets. They know how to manage what is often a high stress and chaotic process to achieve the maximum value for your property. An Auctioneer’s everyday job is to assemble multiple buyers and encourage them to compete against each other financially to own a particular offering. A Professional Auctioneer will establish a date and time your property will sell, whether it is an online or live auction. That date will give the auctioneer time to inform all interested buyers through their proven marketing plan about the offering, conduct open houses, showings and assemble them in one place at the time of the auction. A 21 day marketing period will certainly attract more competition on a predetermined date than a one-day listing. Thus, maximum competition results in maximum price.
Sellers Benefit From Auction Marketing
Experienced real estate auction firms know how to structure an auction to achieve the top price. Many buyers and real estate agents alike think that cash must be presented for the total sales price immediately following the auction. That is true in foreclosure sales, but not in the open market. Auctioneers have learned in recent years to move with the market and allow financing and appraisal contingencies to buyers to maximize the return for sellers. Inspections, Title Opinions, and surveys are often done prior to auction day so there are no unsavory surprises between the auction day and closing.
Sellers have different needs that can be solved with the services of a professional auctioneer. Say a seller wants a two-week temporary lease after closing to move out, not a problem. The auctioneer simply makes the Temporary Lease a condition to the auction and the successful buyer is contractually obligated to honor the lease. With an auction, the seller gets to set the rules, the date and the terms of the sale. They also remove themselves from the gut-wrenching negotiation process as the terms of sale are the same for all buyers and they are competing against each other instead of the seller.
In short, the auction process managed by a professional auctioneer with proper real estate licensing and experience will likely prove much more enjoyable for sellers in these hot markets. Additionally, auctioneers welcome the opportunity to work alongside real estate professionals who each have a common goal – to sell your home for the top market price. If you have a real estate professional that you are comfortable with but you want to consider selling by auction the two professionals can work together seamlessly with no additional cost to you, the seller. Experienced auctioneers will also offer traditional co-brokerage to any agent that brings a successful buyer to the auction which increases the pool of potential buyers and drives price even further.