Survival Strategies for Home Sellers

Housing prices have fallen across the US, and there are few signs of relief on the horizon. Here are some suggestions if you're trying to sell in this gloomy market. From MSN.com.

It took 18 months for Vincenzo Fressola to sell his three-bedroom home in Corbin, Ky., and the 40-year-old architect admits to moments of desperation.

He offered prospective buyers incentives ranging from a free summer membership at the neighborhood pool club (valued at $300) to a one-year home warranty for up to $3,000 worth of improvements and repairs.

He tried attracting real-estate agents with a $300 cash bonus and increased the commission from 5% to 6%.

And when he finally did sell the house in July 2008 -- a year and a half after listing it for $194,000 and more than a year after buying a new home in Ashland, Ky., for $282,000 -- it brought in just $155,000, the same amount he and his wife paid for it in 2004.

The credit crunch has hit the Fressola family from a couple of directions. Not only did it hold up the sale of the Corbin home, it has also made it impossible for builders to get the construction loans they need to build houses -- and Vincenzo Fressola needs construction to pick up so that he can establish his architectural business in his new community.

"I'm trying to be realistic, but I can't lose my shirt altogether," he says. "There's a glut of viable houses for sale, and nobody's buying."

A waiting game
Fressola's dilemma is shared by countless other homeowners throughout the country. Potential buyers are waiting, confident that time is on their side.

In the past year, housing prices have dropped in nearly every part of the United States. Sellers have few options. They can take a beating in a down market or wait for a rebound that could be a year or more coming, if the experts are correct.

There is no sign of relief on the horizon. Home prices continue to fall, according to the S&P/Case-Shiller Home Price Indices, which survey prices in 20 metropolitan areas. Las Vegas and Miami have suffered the steepest declines, 26.8% and 26.7%, respectively, between April 2007 and April 2008.

There are so many incentives offered -- from Super Bowl tickets to used Mercedes-Benzes – that it's hard to come up with anything truly compelling. Some sellers stage lavish open house events, with pool parties, cocktails, art exhibits and live music shows. The entertainment has to be good to compete with the massive numbers of foreclosed properties that buyers can get for a steal.

In the sellers' camp, there is fear.

"Sellers feel they have a diminishing asset that will continue to drop in value for the next two years, and they're basically correct," says Robert Glinert, a Coldwell Banker real-estate agent who is based in Beverly Hills and sells property (including foreclosed homes) throughout Los Angeles County.

Some sellers in denial
Part of the problem for the sellers is emotional, Glinert says. It's painful for sellers to accept the fact that the value of a property -- once expected to rise steadily -- has now fallen and will likely continue to fall.

Glinert urges sellers to face reality and act.

He suggests that they price their houses 10% below the prices of comparable properties and resign themselves to getting 25% less. Many refuse.

In the past year, Glinert has turned down nearly half the listings sellers have offered him because they can't come to terms with the decreasing value of their properties.

Harley Rouda Jr., the CEO and managing partner of Real Living, a real-estate agency in Columbus, Ohio, agrees that pricing a property correctly is the single most important step in selling a home.

"From a macro standpoint, the supply of homes is higher due to overbuilding, and there's a lack of demand," Rouda says. "Banks have tightened lending and raised their credit standards."

Realtors and economists say that South Florida, Las Vegas, San Diego and Phoenix are among the most overdeveloped areas in the country, with "huge gaps of inventory on the market." Nationally, existing-home sales were down 15.9% between May 2007 and 2008 according to the National Association of Realtors.

In Florida, the market has been brutal of late. Denis Riley, 61, and his wife, Lynn, put their two-bedroom, oceanfront Cape Canaveral condo on the market in June 2007. So far, they have received no offers.

Last summer, Riley's real-estate agent assured him that interest would increase in the fall. When that interest never materialized -- and the agent didn't bring a single buyer to view the condo -- Riley decided to switch agents. The new agent has been far more aggressive, frequently bringing in potential buyers, advertising in trade and local periodicals, and holding regular open houses. But the condo still hasn't sold.

Last month, they decided that they would try to rent out the unit for $1,000 a month, but they've found no renters either.

"We'll probably take less than that," says Lynn Riley. "We're also desperate for renters."

Incentives, price cuts
Riley has offered incentives and incrementally lowered his price. He initially listed the home at $259,000, but by May, the price had slipped to $199,000. At that price, the Rileys would barely break even on their investment. They paid $195,000 for the condo in 2004 and in 2006 were told it might be worth $350,000.

Compounding their problems, the Rileys made the same mistake the Fressolas made: buying a new home before selling the first. In December, they moved to a three-bedroom house in nearby Merritt Island, paying $250,000 for a home originally listed at $360,000.
 
The Rileys have tried increasing the agent's commission on the Cape Canaveral condo to 8%, well above the standard 6%, and have offered $5,000 toward interior decorating, recognizing that the present scheme in the house is -- Denis Riley's word -- "kitschy."

"It's a buyer's world," he observes. "There are so many units to choose from. The market is soft, almost non-existent."

Advice for would-be sellers
Stephen Cauley, an economist and the director of research at the Anderson School of Management at UCLA, recognizes that homeowners like Riley face some tough choices.

Homeowners who don't need to sell immediately should stay put for a few years, until the market rebounds, Cauley says. Those who must sell should come to terms with the fact that they may need to take a loss on a property -- a setback that's hard to take. Those in dire circumstances might even have to default on a loan and walk away from a property.

If the decision is to sell, Rouda says, sellers should invest the time and energy necessary to attract buyers in a market where buyers can be picky. First, sellers should make sure their property is priced appropriately, presenting a value that will look favorable to a buyer.

In addition, he says, sellers must make an effort to present the house well. That means sprucing up exteriors with fresh paint and necessary repairs, making sure interiors are painted with neutral colors, and eliminating household clutter.

Rouda recommends taking down family photos, so buyers don't feel like "they're kicking a family out."

Experts tend not to recommend superficial building improvements other than fresh paint and repairs.

Glinert says that the only home improvements that really matter are those that add substantial value, such as a modern kitchen or a nicely finished basement.

Some sellers are renting their properties until they can find a buyer. But becoming a landlord, especially a long-distance one, presents its own set of problems. Real-estate agents speak warily of the hassle involved in "the three T's" -- toilets, trash and tenants. Cauley, the UCLA economist, recommends that sellers hire a good management company to oversee the property. He said the cost normally is about 8% of the rent.

Both Rouda and Glinert believe an action-oriented plan is important, counseling against endless waiting. Glinert speaks with all his sellers by phone every week and does an in-depth review of each property for sale once a month. If a home hasn't sold within 30 days, he tells his client to lower the price.

"If an owner won't lower the price after the second month, I give the listing back," he says. "I can't lie and say to a client, 'Hang in there, you're going to wake up on Christmas morning and be glad you waited.'"

Glinert's grim prediction is that houses won't start to recover their lost value until 2011.