- The Washington Times - Wednesday, October 11, 2006

Many sellers in today’s market are bemoaning the fact that prices have stabilized or are falling in their communities.

While numbers year-by-year regionally and nationwide have demonstrated strong appreciation, the latest month-to-month declines in some markets have made headlines and struck fear in the hearts of homeowners.

Despite very robust long-term housing appreciation, many observers of the market and prognosticators write scary reports about how appreciation has slowed and prices have dipped.

Stories from the field go something like this: The seller won’t accept an offer of $1,050,000 on his $1,200,000 listing because he’s already dropped it $200,000 from his original asking price.

When asked how much he bought the house for 15 years earlier, he answers, “That has no bearing on my situation now.”

The real answer is that the seller actually bought the house for around $400,000 15 years ago and believes the roughly $600,000 gain on the property is not enough because last year the same type home sold for $1,400,000.

Sellers: Sell in the market you’re in, not the one you wish it could be. This particular seller’s story and stubborn attitude could be blocking a great opportunity for him to take advantage of the current market instead of the market taking advantage of him.

It goes something like this: “I’ve already lost $200,000. Why would I give up another $150,000 to sell my house?”

If we’re going to talk about how much has been lost — on paper — and how much as been gained once you sell the house, then let’s look at the real cash gain on the property.

Many homeowners are sitting on more than 1,000 percent gain in their homes. They just haven’t realized it yet — nor will they — until the house is sold.

Let’s use our stubborn seller as example.

The homeowner bought the house for $400,000 and is standing in front of a $1,050,000 offer that could net him more than $600,000 if he signs the bottom line.

So what’s his gain? At an initial glance, it looks like his house has grown in value by 162 percent, thus he’s gained a 162 percent return on investment, right?

Actually, while the asset has grown by 162 percent, his return on the investment of his actual dollars is much higher.

Here are the assumptions.

• Purchase price: $400,000

• Down payment: $40,000

• Mortgage amount: $360,000

• Sales price: $1,050,000

• Cost of sale: 8 percent (commission, closing costs, seller subsidy, etc.)

• Net gain: $606,000

With these numbers, his $40,000 investment several years ago has resulted in a net gain of 1,515 percent.

My question to the seller is: How much is enough?

The Office of Federal Enterprise Housing Oversight reports that the average appreciation for the second quarter of 2006 for housing was more than 10 percent over the same period a year ago.

Of course, the media jumped on the report’s statement that “the quarterly rate reflects a sharp decline of more than one percentage point from the previous quarter and is the lowest rate of appreciation since the fourth quarter of 1999.”

What no one reported until this column is that the average appreciation nationally has been 298.85 percent since 1980.

In the last five years, the national average has been 56.49 percent in appreciation. What is important is what has happened in your state or community.

In Virginia, 26-year appreciation has been 360.29 percent; five-year appreciation has been 83.38 percent.

The latest appreciation figures in my marketplace are down about 1 percent compared to the same month a year ago. Also in my market area, sellers have been overpricing to the tune of 13 percent higher than sellers last year. They are selling at 5 percent less than asking price. It’s not so much a loss in value as it has been an overpricing of the inventory.

Regardless of price, the basic investment strategies still apply here — buy low, sell high.

It’s just all relative. If the seller thinks he’s “losing” tens of thousands of dollars because that’s what the houses were selling for last year; and that’s how much he’s had to reduce the asking price, then he has a long emotional row to hoe.

On the other hand, the seller could look at the numbers and start dancing all the way to the bank with his return on investment of 1,515 percent.

So, again I ask: How much is enough?

The biggest challenge a seller has to face in today’s market isn’t the market, it’s actually the person he’s looking at in the mirror.

M. Anthony Carr has written about real estate since 1989. He is the author of “Real Estate Investing Made Simple.” Post questions or comments at his Web log: (https://commonsenserealestate.blogspot.com).

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times is switching its third-party commenting system from Disqus to Spot.IM. You will need to either create an account with Spot.im or if you wish to use your Disqus account look under the Conversation for the link "Have a Disqus Account?". Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide