By Lisa Gibbs
Given the lackluster housing market, Meghann and Cort Battles didn't expect much when they listed their four-bedroom home in a Denver suburb for sale in January. So they were taken aback by the onslaught of interest. Meghann juggled 32 showings in the first month. "It's just crazy," she says.
Wait, isn't the real estate market still supposed to stink after five straight years of falling prices? Turns out that while analysts debate when the market will hit bottom, for a surprising number of cities the turnaround has already begun. In December prices rose in 109 of the 384 metro areas tracked by the data firm CoreLogic. Scrub out foreclosures, and that figure climbs to 169.
If you think that recovery means a return to the boom's double-digit price increases, forget about it. "The market won't suddenly snap back," warns CoreLogic economist Sam Khater, who has studied past housing busts. And for harder-hit areas, such as central Florida and the Rust Belt, improving may simply mean things are less bad than they were two years ago.
No matter where you live, though—or where you want to live next—the strategies you employ to sell your home must change to reflect the realities of what's now a healing market. The rebound is likely to creep rather than surge ahead. Yet if you know how to price and market your home properly, you can list your home with confidence that it will sell reasonably quickly and close to your asking price.
See if your town is near recovery. Many economists predict that 2012 will be the last year overall housing prices decline, as the final wave of foreclosures from the slump hits the market. After that, prices should inch up: 2% in 2013, 3% in 2014, according to a consensus of analysts tallied by Moody's Economy.com.
Why? Against a backdrop of low mortgage rates, employment has improved slightly, and home prices have fallen long and hard enough that buyers are beginning to realize that they won't necessarily lose their shirts by purchasing real estate. To see if your neighborhood is on the verge of a rebound, you have to look for the signs.
For instance, is local employment on the upswing? The improving jobs picture has led to shrinking housing stock across the country, as enough investors and bargain hunters have come on the scene to unclog the glut of foreclosures that's been blocking a recovery. Also, "builders are not putting up very many new homes," says Celia Chen, who follows housing for Economy.com.
Understand the buyers' psychology. For years buyers were scared of overpaying for a home. They're less so now, but they've grown accustomed to thinking that they'll score deals, so they tend to act slowly, and they typically start bidding around 10% to 15% below list price.
Denver real estate agent Ron Buss says he sees this all the time with clients such as Aaron Blankenship, who lost 10% when he sold his home in Rochester, N.Y. last year to move to Denver for a new job with Molson Coors. Blankenship, 37, is biding his time renting as he looks for a new home. "I'm much more risk-conscious," he says. "It's a challenge figuring out how much we really want to spend and how much we really want to be tied to our home."
The cautiousness is not just in people's heads. Lenders are still stingy about approving mortgages, and buyers must be sure that whatever price they offer will pass muster with the appraiser and the bank. "It's been a little better in the last few quarters, but credit will take five years to sort itself out," says Economy.com's Chen. Still, a growing number of buyers realize that if they wait too long in this market, they may miss out.
You can hold firm on price if you're patient. The days of having to deal with low-ball offers are coming to an end. Ask Deanna White. The divorced mother of two says she didn't need to sell her home in the Denver suburb of Highlands Ranch; she simply wanted to downsize. In July the house next door, smaller than White's, sold for its list price of $337,000 in three weeks. In August a three-bedroom down the street went for $341,700 in five days. So in the fall White, 41, decided to go for it, buoyed by the fact that she wasn't in a rush to move. Her home, listed at $365,000, attracted offers of around $330,000. White didn't bite but adjusted her price to $359,000. After a holiday lull, activity exploded, and White agreed to sell for $354,000.
The higher your price, the more patient you must be. Cheaper homes are affordable to more buyers and appealing to investors, so recoveries usually start there. Also, jumbo mortgages that aren't government-guaranteed—loans above $417,000 and up to $625,500 in high-cost areas like New York—not only charge higher rates but also come with tougher underwriting standards, further slowing things down.
Screen your buyers. Working only with buyers pre-approved for a sufficient mortgage has long been standard advice. But with more offers rolling in, a good agent will call loan officers for more information. There's an incentive for borrowers to grant their loan officer permission to talk. "If I'm going to speak with a listing agent to advocate on my borrower's behalf, I clear it with the borrower first," says mortgage consultant Kym Poladsky. "Most borrowers who are competing want you to help get their offer accepted."
Get the price right the first time. Set a realistic price from the get-go so your house doesn't look like a throwback to lousy price-slashing times. Think like an appraiser: Analyze comparable sales (look for price per square foot) and see how long competing homes have been on the market.
Scouting active listings is also crucial, says appraiser Matthew George. "You have to know what you're competing against," he says. Before listing, arm yourself with a simplified evaluation of your home, called a summary or restricted-use appraisal ($150 to $200). To find professionals in your area, go to appraisalinstitute.org.
If you think you erred in pricing, act quickly and decisively. Are you getting lots of showings but still no offers after 30 days on the market? Cut the price by at least $10,000, says Justin Knoll, chairman of the Denver Realtors organization. At that point, you can hold firm on price and try to negotiate offers up.
Let your home's value dictate the price. This advice may seem self-evident, but owners may have lost sight of it during the bust. On the one hand, some sellers clung to the false hope of a return to boom prices, so they set prices unrealistically high. Others may have gone too far the other way—by setting the price on their higher-end home below jumbo loan levels simply to draw more interest. In an improving market, that type of thinking isn't necessary.
Understand that you're no longer competing with gutted foreclosures. Buyers are tired of looking at worn-down, neglected, distressed properties and often don't have much extra money to do a lot of fixing up. "Clients tell me all the time, 'I'll spend a little more for something that's ready to move into,' " Knoll says. "Sellers need to take advantage of that."
Take care of structural and cosmetic necessities—but not much more. In lean times, forking over $50,000 for a new kitchen may have seemed like a necessary move to stand out. That's probably the wrong thing to do now, says George, the appraiser. Instead, stick with such basics as paint and flooring. Fix things that will come up in inspection. And respond quickly to feedback. If an issue arises over and over in buyers' reactions, it needs to be addressed immediately.
The information contained herein represents the opinions of a third party and does not necessarily represent the opinions of Naperville Accounting Firm, Susan S. Lewis LTD. and Platinum Financial and are unaffiliated with any of the entities referenced above.
Adapted from the April 2012 issue of Money. © 2012 Time Inc. All rights reserved.
