You're about to discover the kiss of death when selling house. Every year, thousands of home sellers fall into this trap and they later regret it. It can (or may have already) cost tens of thousands and if you are a real estate investor that sells several properties in a year, it could cost your hundreds of thousands over a career. This applies to every home seller, the one who does one deal in a lifetime as well as the person who does a thousand sales. It can be avoided very easily but the difficulty with staying out of the trap is basic human psychology and our hard wired nature. Once you find out what this is, it could be a game changer for your real estate career and if you are a homeowner, could make a huge difference in your life. Here's the kiss of death when selling a house and how to avoid it...
I want to share with you a very important part of the process of selling a house, something that so many people make a mistake on. It's extremely costly. On one property alone, it can cost you tens of thousands of dollars. If you're a real estate investor and you do several deals, it could cost you even more, perhaps hundreds of thousands of dollars over the course of a career.
You're also going to discover in this particular video, I'm particularly biased, opinionated, and passionate because it's decisions like this that have made my financial future but it also could have broken it. My livelihood is based on the idea that I am going to make money on my real estate transactions as well as now that I mentor and coach. My apprentices, when I split the profits with them, those deals have to close, so I've literally had to, in the real world, experience this lesson to be able to share it with you. I hope that this is going to save you money, reduce headaches and heartaches when you sell a house, whether you're just a home owner or you're a real estate investor.
What is This Kiss of Death?
What is it that can cost you tens of thousands of dollars that too many people overlook? It's this. It's sitting the property on the market for an extended period of time. That's it. That is the kiss of death. Now in the vernacular of a real estate MLS listing, it would be called Days on Market or the short version of that is DOM. Okay, so I'm going to take you inside this a little bit rather than just telling you what time it is, I'm going to show you how to build a watch here. I think it's critical because it's such an important lesson. I would argue that many of you would get done watching this video, you will think it's terrifically helpful, you may even share it with friends and family, but then in the real world, you may go out and still not apply this. I want to drive this home because it's so, so important.
Days on Market
By the way, I'm going to assume for this video, that you've probably watched a few of my other videos, such as How to Sell Any House Quickly, another one called The Biggest House Flipping Mistake. This one here, we're going to say on the market, this refers to whether you're on the MLS or even if you're an investor trying to flip it to another investor and it never gets on the MLS. The idea is that you have the property for sale on the market. Here's what happens: The more that this number goes up, so it goes from 7 days to 21 days, to 60 days, to 90 days, the less desirable, so I'm going to call it, the desirability goes down.
Now here's the psychological reason for that. Human beings are hardwired for certain, it's very interesting, Robert Cialdini, he wrote the book The Psychology of Persuasion. He identified a few of these. One of them being social proof.
Have you ever looked at an article and seen fourteen hundred comments and a thousand Facebook likes and all sorts of other social shares, and you thought to yourself, "Hmm... This must be an interesting article. Look how many people have read it. Look how many people are commenting on this article." That's called Social Proof.
A Simpler Example
If you're walking through a city and someone goes "look there!" and looks up at the sky and some other people look up. You can't help but look up and see what's going on, right?
Pertaining to Real Estate
Social proof. We are hardwired to follow the crowd. Social proof can work in reverse as it pertains to selling a house. That is as the days on market goes up, what ends up happening is, the question becomes to a prospective buyer, they're going to ask their buyer's real estate agent, "How long was this put on the market?" If the agent says, "It's been on the market for a hundred and twenty days." What's that buyer going to think to themselves? What's going on? Social proof in reverse, isn't it? Why has nobody else bought this property? What's going on? This is another part of it too.
It creates kind of a domino effect because not only does it look poorly upon the house, that there's been a higher days on market, but also people are pre-dispositioned to do more to avoid paying than to gain pleasure. We can thank Tony Robbins for discovering that.
What That Means
In the housing world when you're trying to sell one, that they might be concerned that they're walking into a money pit, or they're going to get screwed, or in some they're going to miss something. They're more scared of making a bad decision than making the good decision to move into that home which could be a wonderful home, great backyard, two car garage. It may have everything they want, but the days on market is up there and that's lingering in the back of their minds. Does that make sense? If it doesn't make a lot of logical sense, it makes sense in the real world. Look, I've dealt with this stuff. I've been a part of over a thousand transactions. In fact, I've been using that statistic for awhile so maybe it's up to two thousand at this point. I haven't recalculated it in awhile.
This right here is something I am so sensitive to. Either my own deals or also in the deal that I work on with my apprentices. I will ruminate on the decision of how I avoid this, that's what I'm going to talk about here in a moment, for sometimes up to a week because once that days on market starts to tick up, that is a real problem. For those of you who may be thinking, "Well how do I avoid this?" I'm going to go through some important steps in how you do that. Real quickly though, the way these MLS systems work especially, even if you maybe try to take it off the market and put it back on to kind of reset this ticker, now a days they have what's called a CDOM, Combined Days on Market. A lot of MLS's are cracking down on what we used to do if it didn't sell for awhile. We'd take it off and put it back on. There stopping us from doing that, so there you go.
How is This Happening?
What causes this on the market for an extended period of time? What causes this days on market? Here we go.
- Priced Too High
- If you see a property on the MLS for six months, for even a hundred and twenty days, I can assure you, I can guarantee you the reason why it hasn't sold
- maybe it's because of the paint color.
- Maybe it's because the garage.
- Maybe it's because the driveway's too steep.
- You know what the answer is? The price is too high.
- Because if the price is dropped low enough, people will overlook those blemishes.
- If you see a property on the MLS for six months, for even a hundred and twenty days, I can assure you, I can guarantee you the reason why it hasn't sold
If you don't believe, you can even see it in places like Detroit. They sell houses for a dollar. If you tried to sell your home tomorrow for a dollar, would it sell? Yes it would. It's ultimately a priced too high issue if it doesn't sell.
What Not To Do
What often times people, and I'm going to beg that you don't do this so listen carefully, they think to themselves the following logic:
I'll start high, see if anybody makes an offer, and then I'll drop the price.
I'm here to tell you that this right here is a terrible strategy. If you gotten away with it before, that's even worse, because now it's trained you that you can do it again. Do not do that. Terrible idea.
When you start high, what that means is you ultimately run the risk of no one making an offer. If no one makes an offer, the days on market, the DOM goes up. The longer it goes up, the more difficult it is for you to reverse the problem. Even if you drop the price, the problem is that's still there, days on market, it still shows 90. Why hasn't anybody bought it?
This doesn't go away. Here's the other problem, and I want you to be very critical of this.
The first week or two is the most powerful part of the listing.
That's when you're trying to sell a property, whether it's flipping it to other investors, whether it's a retail home that you've lived in for twenty years, when you're trying to sell that house, that first two weeks, that's the big zone right there. The house is the new kid on the block, so there's no reason to think that there's anything wrong with it because it hasn't been on the market for very long. This first two weeks is critical. This is where the houses get sold. The majority of properties that I sell or my apprentices sell that I'm a part of transactionally, we sell in the first two weeks. Why? Because we start low.
You start the listing where it needs to go out at. Where you want to sell it at. If you start high, you run this risk. If you start low, you know, what if you started too low? Well guess what? You'll get a multiple offer situation and the market will bring it back up in most cases. Typically you can't start too low but you can definitely start too high. Some other things, when you put a property in the MLS, it's going to propagate to places like Trulia, Zillow, Hot Pads, and all those other places on the web. People look at those places, but there it's going to get distributed at what you priced it to begin with. What did you begin the offering at? If you start it high, even if you drop the price, it doesn't mean that the MLS is going to update Zillow or Trulia. It may not. You start at the price you need to start at so you can sell.
Figuring Out How To Price
Like I said earlier, I will spend a lot of time ruminating over this subject right here. I'll spend a lot of time trying to figure what this thing should be listed at because it makes such a big difference. That's not something that I can share in this video because it's too complicated. You can take into account the appraisals. You can take into the account the closed comps. Take into account the active. There's so many different variables. You've got to study this stuff. I've spent a lot of time with my apprentices and coaches just working with this particular piece because it's so important. What does it need to be priced at? Where does it need to start at?
I've got a ton of stories on this. I'll do a quick one on this item. Someone I know put their property up for sale and they had it priced a little bit too high. The person actually had contacted me to ask me what I thought. Not one of my students, acquaintance of mine. I told them, "Look, you need to drop the price and just get this thing sold." He goes, "Yeah, but I don't want to give it away. You know Phil, I don't want to take a bath on this." I said, "You're not. This is how real estate works. You have to build in a little bit of factor of margin for the fact that you have to give the buyer what the buyer feels is a deal."
That's part of this. I'm not changing an entire marketplace here. I'm not asking you to tell seven thousand homes below market. For your one house or your one house per month kind of numbers, you sell just a little bit below everybody else, you'll sell it faster. I was telling him this, and he was like, "Yeah, I really want to do this." Long story short, this was right at the top of the market. The market collapsed, as we know, this was several years ago. He made empty house payments on that house for five years, on a four hundred thousand dollar loan. Five years of empty house payments on a four hundred thousand dollar loan. The market eventually came back and he sold it.
You Have to Price it Right
Do you know how much money he lost? He actually had to sell it for less five years later. That is so common. I can't tell you how often people start high and then they drop the price and they still don't sell. Meanwhile, they have the holding cost, the utilities, the monthly payments. Could be the headaches and heartaches because you have to move or something. You've got to price it right right out of the gate. If you have a real estate agent telling you, "You've got plenty of time. Let's start high. We'll get low." That is kiss of death. Sitting that thing on the market is terrible idea. That person did eventually sell their house but unfortunately it probably calculated, I don't know, maybe they lost $50,000. It was huge number. They didn't want to do a short sell, that's why they just didn't turn it loose and give the keys back to the bank. They wanted to keep their credit good.
You start low or at least at the price you want to get rid of the property at.
That make sense? Okay, great. All right so, what I'm about to share with you, I'm also just so passionate about. I can't wait to share it with you because I think it's going to be a game changer especially if you're a real estate investor. All right so assuming you have it priced correctly, it is certainly possible that somebody is going to come along, make an offer, and it's going to be lower than even the low price you had it listed at. This is something I want you to write down, put it on your office wall. I want you to have this everywhere, right on the tablet of your heart, so that you never forget what I'm about to share with you.
Your First Offerer is Usually Your Best
Your first offerer is usually your best. I don't know completely why this is the case, but I can prove to you over years and years and years of doing this, they're almost always, almost without exception is the rule, the only big exception to this rule is going to be what I share with you in that video Biggest House Flipping Mistake, which is where I talk about if you don't get non-refundable, earnest money, if you don't verify the person can get a loan. Again, assuming the offerer has the ability to buy the property, they financially can do it, they're usually your best one to work with.
Notice I Didn't Say Offer
I didn't say the first offer they make. I said the first person that makes an offer. You may have to do a little bit of countering back and forth. Maybe the price has to up a little bit because usually the first offer they make is usually a little bit lower than what they're willing to go with. Maybe you need to adjust the term, such as getting non-refundable earnest money. If you're doing a flip, maybe you want them to close with your title company. There's certain things you may want to massage with the offer that you want to work with first offerer.
I have so many stories on this one. An acquaintance of mine again, they bought this property when the market was actually booming. What they did was, they bought it from a builder who just needed to get it off his inventory because he had gotten like an $80,000 deposit to build a custom home. The custom home got built and then the buyers backed out and lost their $80,000. The builder was willing to kind of get rid of it on a dime. Sell it a lot cheaper. Sold it to my acquaintance for $205,000 plus closing costs, call it $210,000. Now when they looked at the comparable sales and they did all their statistics and they got an appraisal, they thought it could definitely sell for $280,000. They get it on the market. Their first offerer comes by with an offer, all cash, $250,000. What do you do? This came in within one day. I'll tell you what they did.
They thought to themselves, "Geeze, we've got an all cash offer of $250,000 on the first day. Boy, if we leave this out here quite awhile, wait it out, we'll probably get a lot more." Some of you have made that decision in your mind before, haven't you? Long story short, they turned this offer down because he would not go above $250,000. He was a legitimate, bonafide buyer, he was paying all cash. They turned him away. They sold the home for $180,000 in the end. True story, and I know these people. They're very good people. They made a big, big mistake. Don't make that mistake.
A Second Example
I have another example where someone that I know had put a property on the market for $200,000 because he thought the comps supported that. He didn't do his comps research as well as he probably should have, but either way he put it on the market for $200,000 and he dropped it to $180,000 pretty quickly and he got an offer at $154,000. He thought that's way too low. He's got it listed at $150,000 right now and doesn't have an offer again.
Why It is Usually Best
Your first offerer is usually your best. Why? Well, I think, again I don't know all the reasons, but here are a few:
- Some People are Waiting For a Certain Property to Come on the Market.
They have like a little mechanism set up with their real estate agent that when something hit their parameters, they get an e-mail of it.
So often, like the house I just sold about a few weeks ago, they were waiting for a home in that subdivision and as soon as it came up, boom, they made the offer. What did I do? I said yes. I didn't wait. I said yes. Some people are just sitting there waiting for a property to hit the market that first the parameters of the one you're trying to sell. That's one of the reasons why your first offer is your best one.
2. As the Days on Market Go Up, it Becomes Less Desirable
That's that kiss of death we're talking about. Your first offer is usually your best one. If you stick to this rule, you will be so much wealthier as a real estate investor and as a home owner, you will be able to move.
Does it mean you may walk away from some profits? It sure does. That is absolutely possible, but your bigger risk is a higher days on market. That it is that somehow your first offer was such a low ball offer. Again, that could be the case too. Going back to that video Your Biggest House Flipping Mistake, you have to verify that this offer is for real. I mean, some people will make an all cash offer because it's all the money they got. Then you can decide, do you want to do like a first mortgage, seller held, you know, piece of the puzzle? Maybe they bring $250,000 cash and then you carry back $30,000. No, you know. Buyer might not agree to that.
- The point is work with your first offerer
- Treat them like they are royalty.
- This maybe the only offer you get. So many times I've seen this happen. It is so common.
Don't Be Stingy
Like I said earlier in the video, it is entirely possible that you could hear what I'm saying, shake your head and say, "You know Phil, this is fantastic. I'm so glad you shared this with me." Then you go out in the real world and then you fall prey to this. It means that you can't be greedy. You've got to remove greed from the equation, okay? When you get that first offerer, work with them, assuming they're bonafide.
What if they make a low ball offer?
Ask them to support it. Ask them to tell you why the number is what it was. They may teach you something. You may have not evaluated a property as well as you should have. You may not know the rest of the market as well as they do, because they've been looking. They see everything that goes on the market. You may have missed some things.
Do Your Homework
It also means that you need to spend a lot of time ruminating over what your opening price needs to be. If you're not a licensed real estate agent or you don't have access to the MLS through a licensed real estate agent, that puts you at a huge disadvantage. If you're a homeowner watching this, I do have a great video called MLS Access for Investors. You may want to check that out to figure out how you can get access to the real deal comps, so you can do your own analysis.
Real Estate Agents
Look, I'm not going to say anything negative about all the real estate agents that are out there working hard to help their clients, but I will say this, they have a different motivation somewhat than you do. A listing agent is going to get three percent. If it sells in the first week or not, they're going to be okay. If it takes three months and the days on market go up and you have to drop the price considerably lower than you should have to create the desirability, than they don't lost all that much. Three percent of a hundred thousand is three thousand. Three percent of ninety thousand, well it's a little bit less but not a whole lot less. Again, I'm not saying anything about real estate agents, I'm just telling you human psychology, you as the real estate owner, you have to help make a very informed decision here.
That also mean, and I'm going to side with the agents here, many agents understand this rule. Sometimes they try to convince their clients, "Say yes. Say yes," and their client goes, "Well, you don't care. You're just an agent. You know, it's me that's losing the $30,000, as opposed to selling it for $280,000, I'm trying to sell this thing for $250,000." The agent might be telling your absolute wisdom. Your first offerer is usually your best. If it's a little bit low, try to counteroffer with them, you can also ask them to prove. These lessons right here, I really hope this is going to make a huge impact in your bottom line.