Pricing Problems

So, let’s say you want to sell your property. You don’t read newspapers, don’t have any basic understanding of economics, but believe you are a smart, savvy real estate investor. How do you figure out how much your place is worth?



I guess you could ask your realtor, but she’s living in her leased Lexus and eating from the Pot Holder dumpster these days. Plus, you are starting to suspect her commission-based opinion about “value” might be biased and misleading. So, that’s out.

Well, another way to figure out what your place is worth is to calculate what you put into it and add a nice Nikki Blonski profit. After all, real estate always goes up!

Just four summers ago you slapped down $385,000 for your condo, plus you dumped another 30k upgrading the place with every accoutrement HGTV told you to “invest” in: Granite countertops, crown molding, stainless steel--the works, player! Plus, Flip This House said $1,500 in granite = $3,000 in value. In addition to what you put into it, your mortgage lender said a special place like yours is guaranteed to appreciate 10% per year since you bought it.



So, factoring in all of that, plus a fat profit as a reward for your real estate expertise, your place is worth…um…how about…$495,000? Yeah, that has a nice ring to it! It has no basis in fundamentals (“What’s are those?”) or reality (“Ree-al-wha?”), but it sounds good. Your homeless realtor concurs.

However, last weekend somebody told you about an article in the New York Times (but certainly not the Long Beach Press Telegram—they hardly cover real estate at all) claiming home prices will continue to drop through 2009. You start to worry that if enough people read these left-leaning marxist rags, some of the appreciation gained during the last few years will be wiped out.



So, given all that negative nelly talk and the bias of the mainstream media, maybe you should just ask for enough to break even on what you put into it (and cover 6% in Vagrant Realtor commissions, of course). I mean, it’s not as if you’re GREEDY or anything. I guess a huge profit isn’t that important. Obama would just tax the hell out of it anyway, right?

Plus, no matter how bad these “market corrections” (whatever those are) get, it’s not like a sophisticated real estate mogul like yourself would every actually LOSE money. Ho ho. That’s a laugh riot! So, your place is now worth…uhh…hows about...$435,000? How does that sound?



Drat! Your co-worker at Enterprise Rent-a-Car mentioned some liberal claptrap about the economy quickly going down the toilet and people being unable to get loans--especially the hocus-pocus interest-only loans that allowed people like you to buy beyond your means in ’04. Well, this is the first you’ve heard of that garbage. However, just to play it safe, maybe it’s best to take a tiny loss just to be done with the whole thing, no?

Aw, heck, just price it at $379,000 and let the rich foreigners your recently-laid-off cousin told you about snatch it up. I mean, it’s not like you’d actually sell for such a low-ball amount, but you should price it that way to, you know, drum up interest and start a Hong Kong telecommunications executive vs. Russian oil baron bidding war.

Okay, time to list this baby on the MLS!

Address: 2055 E. Broadway, 90803
Asking Price: $379,000
Size: 2 beds, 2 baths, 1,158 sq. ft. (built in 1970)
$/Sq. Ft.: $327
HOA Fee: $235
Purchase price: $385,000
Purchase date: 7/2004
MLS#: S550543
On Redfin: 15 days

So far so good. But what about the listing description? You’ve got to make it POP and really show buyers how special this property is.

I got it!

Since you’re already appealing to low-ball vulture buyers and foreigners with your bargain pricing, why don’t you start the listing description with a grievous spelling error? You know, to let buyers know you’re half-retarded and aren’t some East Coast Liberal Elite.

Spactacular deal! Inside state of the art laundry and parking for 2 cars. This one can close FAST. 1135 sf. of living space 2 bedrooms and 2 baths and a redone kitchen with granite and stainless steel appliances. Walls of glass creating a light and bright living space with panoramic views. Top floor loaction.Steps to dining, beaches and across from the park. Start enjoying the life style.

Nailed it!

And I really like the use of the word “loaction.” What is that, some kind of Russian word meaning “luxury living”? Brilliant.

And your closing line of “Start enjoying the life style” is nothing short of brilliant! That was a clever idea to keep it vague. That way you can appeal to a wider range of buyers, looking to live whatever particular lifestyle they’re into. Gay? BDSM? California? Long Beach? A life of style? It’s all good!



I gotta say, for someone that just a few minutes ago had no clue how to price real estate, you are really on a roll here.

Actually, you know what? And I apologize for bringing this up now that you’ve gone through the trouble of creating a listing so lovingly-adorned with typos, but there is one other way to determine a property’s value.

I’ve never actually seen it done in Long Beach, but I heard it’s sometimes helpful to look at other nearby, similarly-sized and appointed houses to get an idea of realistic asking prices. Oh, here’s one that’s really close to your condo. In fact, it’s in the same building! Another savvy investor, no doubt!



And the best part is, he’s aski--what the?! $300,000?!!



Well, he must have serious mold problems or something if he’s asking only 300k. What is that jerk thinking? He clearly doesn’t know how to value real estate. I mean, hello? At that price, gang bangers and welfare queens are going to move in!



Let’s compare the monthly payments between your condo and his dump to figure out just what kind of riff raff he’s trying to attract to your building.

Your 1,158 square foot 2/2:
Down Payment: $75,800
Monthly Payment: $2,500
Income Requirement: $94,750

His 1,197 square foot 2/2 mold farm:
Down Payment: $60,000
Monthly Payment: $2,000
Income Requirement: $75,000

The nerve! Well, clearly this hideous property doesn’t count because he’s pricing with no regard to true market value. What a lunatic! He’s obviously just some old fart with 30 years of equity just GIVING IT AWAY so he can move to Leisure World, cut coupons, and soil his Depends for the rest of his miserable existence.



It totally doesn’t count because with all of his equity, he’ll still make a monstrous profit. It’s not fair for you to lose value just because he can afford to take a bargain bin price. I mean, when did he buy his place, in like 1985 or something?

Past sales:
Jun 14, 2005 - $445,000

Oh.

So your neighbor is actually going to lose $165,000 if he sells at his current asking price? I’m no math expert, but assuming he sells at this bottom-of-the-barrel price, you will automatically have to absorb a $100,000+ loss if you want to compete.

Wait, that can’t be right. My calculator must be on the fritz. It’s one of those solar deals, you know.

I say just hang in there. Don’t listen to all those chicken littles. I mean, it’s not like the bailout is causing interest rates to increase.

Oh.

Well, the good news is there are plenty of jobs so there are going to be a ton of buyers out there.

Oh.

But nevermind all that crap! I mean, who reads newspapers anymore? Liberal elites, that's who! Don't worry, just hang tight and give the Wall Street Bailout time to work its magic. In fact, I'm so confident the bailout(s) will start another housing bubble that by this time next year you can sell for $499,000!

Plus, you've only been on the market for 15 days. I say give it another 150 before you even consider cutting the price. After all, you have to provide sophisticated buyers with enough time to sift through all the underpriced condos and discover your shining jewel. I mean, who wants to pay less for the same thing when everybody knows the only things worth buying are woefully overpriced.

Duh, it's the most obvious sign of quality.