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Michael Ertem

The Economics Behind a Successful Home Sale

Friday, May 20, 2011 - Article by: Michael Ertem - Bishop Funding Group - Message

The economics of any sale is straightforward: offer something to a buyer that is worth more to that buyer than what the buyer currently owns. The key is to discover what buyers value and what they are willing to pay. Consider the economics of selling a home. Five years ago, simply putting a home on the market virtually guaranteed a sale. Real estate was valuable to enough people that a buyer could be readily found. Those days are long gone. Buyers are much more discriminating today, but that doesn't mean that sellers can't employ a few simple strategies to maximize the likelihood of a sale. First, proportion matters, which means any improvements shouldn't exceed the neighborhood norm. A home that costs $1,000,000 to build that's located in a neighborhood of $250,000 homes is no longer a million-dollar home, because it won't sell for a million dollars. Buyers, for the most part, don't value extravagance enough to pay for it, so it's wasteful to spend money on improvements or appliances that exceed the market's expectations. Virtually all buyers value the three "N's" - neatness, niceness and neutrality. Homebuyers want to see a trim, manicured lawn upon arrival. They want to see a neat, clean abode decorated in neutral colors. They don't want to be overwhelmed by the prospect of improvements or changes. This all seems obvious, but it is more nuanced than many sellers think. What we value individually, the market might not value at all. A seller's perception of neatness, niceness, neutrality and even proportion, can differ significantly from the market's perception. The goal, then, is to discover what the market really desires and determine whether those desires can be fulfilled. This means listening and paying attention to real estate experts, then adjusting behavior accordingly. This can be a frustrating process because we are naturally self-interested. We tend to believe that our own perception is reality, even when our own perception clashes with what the market values. Successful home sellers know it's not about them, it's about the buyers. They know that paying attention to what buyers want means they will maximize value received while minimizing investment made.

"Money will buy you a pretty good dog, but it won't buy the wag of his tail."

Henry Wheeler Shaw

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