There has been growing concern in the real estate industry about the escalating cost and availability of property insurance. Realtors have provided anecdotal evidence that insurance companies have refused to insure homes that have been previously covered. In other cases, companies have decided to raise insurance premiums by a considerable amount. Some properties involved in insurance coverage issues have real or perceived environmental problems, such as oil tanks or mould. Other insurance issues develop because of outdated wiring or heritage status.
If you're involved in a home transaction these days, you have to think about insurance. It could affect whether or not your clients get the home they want.
Home insurance companies have tightened their underwriting criteria and they're reluctant to take on risks that may not have bothered them in the past. What's at stake for your clients is not just the insurance, but mortgage financing as well. Banks won't approve a home loan unless there is proof of insurance.
A number of home insurance issues have been identified that can impact the transaction process. Those issues can include:
* aluminum wiring- demands to retrofit and /or change completely to copper.
* 60 amp electrical service- not deemed to be sufficient regardless of the size of the dwelling.
* knob and tube wiring.
* gas furnaces more than 20 years old
* oil tanks
* wood burning appliances- WETT certificate is being measured against current building codes.
* first time buyers without prior home insurance history.
* insurability point system now used by insurers which may be detrimental to first time buyers. This included "red zoning" because of the location of the property.
CAN INSURANCE ISSUES STOP A REAL ESTATE TRANSACTION??
In most cases, a mortgage lender will require property insurance as a condition of borrowing. No active policy in place, no mortgage.
For this reason it is recommended that the application or request for a homeowner policy be filed as soon as possible after an offer has been accepted. Realtors should make sure their clients know this, and ensure it is at the top of the "to do" list to complete the transaction.
Insurance companies will review a variety of factors in determining both the availability of property insurance, including the personal records of the applicant. They will review the age of the home, it's "insurance history", and look for any of the issues identified in this article such as certification of the fuel tank and the type of wiring. In rural properties, insurance companies may also review the certification of the well and septic system.
There have been occasions in Canada in the past five years when an insurance issue has delayed closing. This is usually because the buyer has not allowed enough time to work through the issues raised by the insurance companies, or has not allowed enough time to get competing quotes from different brokers.
WHAT KIND OF HOME INSURANCE IS THERE??
A homeowner needs insurance because there are dozens of dangers that threaten their home every day. Depending on the coverage, home insurance will reimburse the owner for the loss of (or damage to) the home and belongings due to an accident or theft.
Everything from fine china to the lawn tractor can be covered under some insurance policies. Others provide coverage only on the building itself. It's important to know what kind of policy to have and what it covers if an accident should happen. There are three basic types of home insurance:
* Comprehensive coverage applies to both the building and its contents (excluding items named specifically in the policy).
* A basic or named perils policy covers your property only against dangers that are named in the policy, such as fire or earthquake.
* A broad policy provides comprehensive coverage on the building, and named perils on the goods inside. It is usually cheaper than a comprehensive policy.
WHAT ABOUT RENTER'S INSURANCE??
Landlords are not responsible for the possessions of a tenant. If your client is renting an apartment or living in a condominium, it's a good idea to get insurance. Renters and condominium owners can get coverage for both the contents of the apartment and for any improvements they have made.
COST OF REPAIRS
In addition to the rise of property values, home reconstruction and replacement costs are also climbing at a steady rate. With a healthy rise in new construction, recent natural disasters and ongoing trade disputes, the cost for lumber, plywood and other building materials continue to rise...many homeowners may be forced to pay these extra costs if their insurance policies do not cover them.
CAN YOU INSURE A COTTAGE??
Many owners consider their cottage a home away from home and should consider insuring it in the same manner. Even if they only use it occasionally, or if it's "too rough" to be a home away from home it should be insured. Cottages can be covered within a house insurance policy or separately. However, there are a few differences between cottage insurance and home insurance. For example, burglary can be covered, but not theft. This means that the owner must prove there was forcible entry in order to file a claim. Also, the collapse of a roof due to the weight of accumulated snow in winter may not be covered.
THE INSURANCE ISSUES ABOUT WIRING
Some insurers are refusing to cover, or renew policies on residential properties with 60 amp electrical service, aluminum wiring or knob and tube wiring. Provincial safety codes do not impose a legal requirement to upgrade or replace these services. A 60-amp service or a service with knob and tube or aluminum wiring is not necessarily a problem, as long as it was properly installed and maintained.
KNOB AND TUBE WIRING IN RESIDENTIAL INSTALLATIONS
Knob and tube wiring, also known as open wiring, was used in homes in Canada for almost 50 years, starting in the early 1900's. Parts are still available for maintenance purposes. Knob and tube wiring that was installed properly can provide many more years or service. The issue starts with changing lifestyles. Most old homes do not have as many electrical circuits as a new one. To get around this, some homeowners have installed additional outlets or new circuits and tied it into the old wiring, rather than starting a new circuit at the electrical pane.
Some problems also occur because if a circuit became overtaxed and 15 amp fuses were constantly blowing, homeowners put in 25 or 30 amp fuses to stop the problem. Having 25 or 30 amps in a wire not designed to handle it causes the wire to overheat. The wire and the insulation become brittle, and that is when the safety issues begin.
Some homeowners also did their own renovations, adding outlets but connecting them into the old wiring without making proper connections. Knob and tube wiring, on its own, is not inherently a problem. Some argue it does not have a ground conductor, but that is true of any wiring installed between 1950 and 1960. The ground conductor - or "third prong" - is necessary if you are plugging in appliances that have a 3-prong plug. If the knob and tube wiring is restricted to rooms without major appliances, this creates no special hazard.
If the home involved in your transaction has knob and tube wiring, it is recommended that you follow these guidelines:
Have a qualified electrical contractor check the knob and tube conductors for sign of deterioration and damage. Some insurance companies may ask for a specific electrical contractor report.
The general inspection report will also identify visible electrical safety concerns in the electrical wiring.
Knob and tube conductors should be replaced where exposed conductors show evidence of mechanical abuse and or deterioration, poor connections, overheating, or alterations that could result in overloading.
ALUMINUM WIRING IN RESIDENTIAL INSTALLATIONS
Aluminum wiring was used in homes between 1965 and 1976. Problems have been reported from the overheating and failure of aluminum wiring terminals. The signs of these problems are the discolouring of the wall receptacle, flickering lights, or the smell of hot plastic insulation. Aluminum wiring in the home will operate as safely as any other type of wiring if the proper materials were used, installed and maintained as per the manufacturerís instructions and the provincial safety code. If the home involved in your transaction has aluminum wiring and you suspect problems may exist, it is recommended that a qualified electrical contractor inspect the electrical system, including connections.
Not all aluminum wiring is hazardous. The safety issues involving aluminum wire usually involves home built from the late 1960s through the early Ď70ís, and may involve the 110 volt circuits used for outlets and lights. The safety issues usually do not involve the major 220-volt circuits for baseboard heating or major appliances (such as a dryer). In some cases connections worked loose and the wire overheated, which sometimes caused a fire. Consequently, the use of 110 volt aluminum wiring was abandoned, and older homes with this type of wiring typically warrant upgrades at connection points or boxes.
The use of aluminum wiring is common and acceptable for 220-volt circuits, such as those serving heating equipment, air conditioners, and electric stoves. As long as the connecting hardware is rated for aluminum wire, and as long as the wire ends are protected with a corrosion resistant compound, concern over the presence of aluminum wire may not be justified. In fact, the majority of electrical utility companies use aluminum cable for their main service lines. In all likelihood, the power lines to your home includes aluminum.
To confirm the safety of the aluminum wire in the home involved in the transaction, recommend having a home inspector and electrician meet at the property to confer and to compare findings. The insurance company may insist on a complete electrical inspection by a certified electrician, rather than a report from a home inspector.
AGING FUEL OIL TANKS
Oil leaks and spills from residential fuel tanks have cost Canadian insurance companies and homeowners a lot of money in recent years. Insurance companies now balk at insuring homes with older fuel tanks, and some provinces have passed strict new regulations governing when the tanks must be replaced.
Real estate transactions can be put at risk if a client purchases a property with an underground fuel oil tank and is denied homeowners insurance. If a client finds that an existing tank has not been registered, remedial action may cost them thousands of dollars.
Homebuyers have also expressed concern over home insurance policies being denied or being unable to obtain home insurance because of the age of both under and above ground oil storage tanks. A home with an exterior oil tank older than 15 years, or an interior tank older that 25 years, usually will not be insured.
The problem is that many oil tanks are corroding from the inside out, so that failure is not readily visible. This often occurs from condensation that builds up inside the tank. Since oil is lighter than water, the water goes to bottom of the tank and causes corrosion. The first sign of a bad tank could be an odour of oil in the air. There might be rust or corrosion where the legs are welded to the tank. It could also be the fuel filter that begins to leak or a nozzle plugging that could be a symptom.
Insurance companies are concerned that an old oil tank will leak and spill hundreds of litres of heating oil into the home, or into the ground. Spilled oil can quickly contaminate soil and groundwater. If the leak finds its way into a sump pump or floor drain, the spill will undoubtedly make it a very expensive cleanup. With outside storage tanks, where rust and corrosion are more common, a spill can contaminate the soil or make its way into nearby streams or rivers.
The most commonly used tanks for heating oil are steel containers that hold about 1,000 litres and weigh close to 1,000 kg. when full. Their odd shape, which means they can be moved through doorways, also makes them unstable unless they are properly secured from tipping over.
Many home oil tanks are designed and built for indoor use. Indoor oil tanks will generally last longer and improve the efficiency of oil-fired appliances. Indoor storage tanks are less likely to spill and do not emit an odour.
An indoor oil tank should be installed where it can be easily inspected but will not be damaged by normal household activities. If possible, the tank should be surrounded with a curb and dike to contain any leaked oil. The tank should never be place tight against a wall as this can cause the tank to rust.
The fuel supply line should be covered and filtered to protect them from damage. Storing objects on top of the tank could potentially lead to damage.
Outdoor ranks should be placed at least 15 metres from any well. To prevent rust, the tankís exterior should be covered with enamel paint. The tank should also be supported properly with a non- flammable base of concrete or patio stones to prevent it from shifting or falling over. Wood is not recommended as it can burn, rot and retains water, which causes the tank to rust. The tank should be sloped slightly toward the drain, and should never be in contact with a wall.
To allow for changes in ground level, the oil burner supply line should have a horizontal loop before entering the building. The line should be sloped toward the building to prevent water collection.
If possible, the oil filter should be placed inside the home because collected water can freeze and cause splitting. The supply line can be installed through the top of the tank to protect against breaking the line and draining the tank. If frost heaving or ground settling causes a tank to move, it should be leveled properly.
UNDERGROUND OIL TANKS
There is concern many underground fuel oil tanks have reached the end of the useful lives and beginning to corrode, rust and leak. Increasing homeowner insurance claims resulting from leaking fuel oil tanks are very expensive and can lead to high insurance rates, or even refusal of coverage.
It is a homeownerís legal responsibility to properly maintain the oil tank and clean up any spills or leaks that may occur.
Under current Ontario legislation all underground oil tanks had to be registered with the Technical Standards and Safety Authority by May 1st 2002. Those still in use had to be upgraded with specific leak and spill prevention equipment, or be removed by a registered fuel oil contractor within two years of if being taken out of service, and the surrounding soil carefully tested for contamination and cleaned.
Regulations in Ontario stipulates only licensed installers can install or replace tanks in homes, and tanks must be replaced every 15 to 25 years depending on the tank design and steel thickness. In Ontario, fuel oil distributors may not supply fuel oil to an underground tank unless it is registered with the provinceís Technical Standards Safety Authority. Tanks that are in the basements of homes, or aboveground, do not have to be registered.
An underground tank is tougher to inspect, but the biggest tip-off it may be leaking is if your home is using more fuel than normal. Just one litre of leaked oil from an underground tank can contaminate one million litres of drinking water.
WHAT CONSUMERS SHOULD DO WHEN BUYING OR SELLING A HOME WITH AN OIL TANK
Prior to closing, contact the fuel oil supplier for the home and determine if the basic or comprehensive inspections of the tank and oil-heating appliance have been completed. The fuel oil supplier will have information about the service/inspection program that is in place for the home.
Selling a home with an oil tank???? Vendors should expect questions regarding the age of the tank, location and proof that the tank installation meets safety requirements. Purchasers should expect to be asked, by their insurer, to provide this type of information when applying for insurance.
PROVINCIAL STANDARDS IN ONTARIO
According to the Technical Standards and Safety Authority of Ontario (TSSA), if the underground fuel tank was installed:
25 or more years ago- the tank must be removed or upgraded by October 1, 2006
20 to 24 years ago- the tank must be removed or upgraded by October 1, 2007
10 to 19 years ago- the tank must be removed or upgraded by October 1, 2008
Less than a year to 9 years ago- the tank must be upgraded or removed by October 1, 2009
Underground tanks that are 25 years or older, or of an unknown age, and not specially protected from corrosion are required to be removed by October 1, 2006. Underground tanks with a storage capacity greater than 5,000 litres will need to be leak tested annually. Unused underground tanks are required to be removed and any contamination cleaned.
Although mould is a constant presence in any indoor environment, homeowners and tenants across the country are paying more attention to any impact mould may have. The extreme cases involve major renovations where mould has weakened or damaged the structure of a home or condominium. As a result, Realtor liability is a concern. In addition, some insurance companies are taking steps to limit coverage for mould damage.
However, scientific research on the relationship between mould and health problems is inconclusive. Currently there are no established standards for acceptable levels of indoor mould. Despite the lack of standards, mould is the latest environmental health issue generating public attention. Realtors are potentially liable for failure to disclose an environmental hazard. The best advice to a seller is to disclose any water problems or presence of mould up front. The best advice to buyers is "beware"
Mould is viewed by insurers as an inevitable risk, and something inevitable is not insurable. Mould is excluded under the category of deterioration. Mould is not a new phenomenon in the insurance industry. Some insurers are offering mould coverage in separate environmental insurance policies under the umbrella of indoor air quality. According to the Ontario Real Estate Association (OREA), the premiums for environmental insurance are quite high- about $10,000 for $1 million of coverage-which is expensive for residential property owners.
ISSUES FOR HOMES WITH WOOD HEAT APPLIANCES
There is now an official code that specifies exactly how wood heat appliances should be installed, and there could be insurance coverage issues if the code has not been followed. Itís one of the things a home inspector will usually pay a lot of attention to. If you are preparing to list a home with a fireplace or wood stove, your client should have it inspected first. There are a variety of professionals who are trained in wood unit safety, including the local fire department, building inspector, a wood heat retailer, and chimney sweep.
If the plan is to install a new chimney or wood-heating appliance, or replace one wood stove with another, many municipalities require a building permit. If thatís the case, the building inspector may automatically inspect the installation as part of the service.
Comprehensive insurance is part of wood heat safety, and making the wood heat system safer means the best possible premium for insurance coverage. Your client should also inform their insurance company or broker whenever any change is made to the wood heat system. This includes adding or changing a wood stove, modifying a chimney-anything that may influence the safety of the wood heat system.
There are four points the insurance company will be concerned with:
* Is it an approved unit? It should be certified by Underwriterís Laboratories of Canada (ULC), The Canadian Standard Association (CSA) or Warnock Hersey.
* Was it installed by a professional? Again, many "do-it-yourself" installations may be OK, but there are many where short cuts have been taken and the unit may not be safe. If a chimney is installed it usually requires a building permit.
* Are the clearances up to the latest Building Code and Fire Code? There is no "grand fathering" of this requirement. The complete details professionals follow is in the Canadian Standards Code CSA-B365 "Installation Code for Solid Fuel Burning Appliances and Equipment" from the Canadian Standards Association. Unless there is special shielding the required clearance is 1200 mm (48") from a combustible material to the sides and rear. There must also be 1500 mm (60") clearance above the unit. For a stove with a sheet metal jacket or casing, the clearance is 900 mm (36"). The floor pad protects flooring from hot embers that might fall from the stove or fireplace. The pad must extend al least 200 mm (8") beyond the sides and rear and 450 mm (18") in front of the loading door. The floor pad must be continuous, no-combustible surface and must not rest on the carpet unless it is strong enough to resist bending or cracking.
* Is the venting system proper? Ideally there should be no elbow in the stovepipe and it should be as short as possible.
OLDER OR HERITAGE HOMES
Older or heritage homes usually have a number pf areas of concern for insurance companies. One of the major concerns will be the roof. Very few insurance companies will take on a new piece of business if the home has not had the roof updated within the past 20 years.
A heritage home will also draw attention if it has a wood heat system. Some insurers are asking that not only should the stoves have an approved label, but that they also be installed by a professional.
The insurance company may also be concerned with the oil tank that was installed at the back of the house 20 years ago. This may require an immediate replacement not only to meet the insurance requirements, but to have a certified tank that the local fuel oil dealer will agree to service.
Other areas that can require upgrades for older homes are plumbing, heating and electrical. If galvanized pipe is used inside a house, most companies will require that it be replaced. As for wiring, most companies wonít insure homes with less than 60 amp service. As described in this article, insurance companies also have concerns with aluminum or knob and tube wiring. In some cases they may insist these be replaced as well.
Because many of these older or century homes are in rural areas without municipal services, insurance companies will also want to know about septic and well installations.
Whatever the issue, insurance coverage is almost always available. Clients who have had insurance and are renewing policies will not likely be declined coverage. First time buyers may have to go temporarily with a specialty market insurance provider, where premiums are higher.
An older home, or a heritage property, may require additional time to arrange for the required insurance. Recommend your clients begin shopping for insurance as soon as possible after their offer is accepted, or recommend a conditional offer that provides for approved insurance coverage.
If your client is buying a condominium, there is a unique insurance relationship with the condominium corporation. Your client as owner should insure their belongings and the structural parts of the building that they own (kitchen cabinets for example) under their own insurance policy. The condo board will need to have an insurance policy to insure the overall building, including each unit.
To be sure that the buyer is adequately insured, and has included the structural components that belong to the owner they should read the condominium corporations insurance policy carefully. This area-what the individual owns versus what the corporation owns- can be a very grey area. The more the buyer knows about the condo corporationís insurance the better they can tailor the coverage for their specific unit. For example, some condominiums contracts go so far as to specify the individual buyer owns the paint on the wall.
Condominium buyers can also get a special type of insurance coverage against "unit assessment". This provides protection against a one-time per unit assessment the condominium corporation decides to charge in addition to the regular condo fees. This "special assessment" usually occurs when major repairs or renovations are required. For example, if there is a fire in the lobby of the condo building, the insurance for the condominium corporation will pay for most of the damages. But if the policy is only for actual cost as opposed to replacement cost there will be an amount that must be covered by the corporation. That is when the corporation may decide to add a unit assessment, which could be a very large amount. Condo unit assessment coverage will protect the buyer if this occurs.
Condo owners will also need liability coverage, and they may also want to consider title insurance.
USING TITLE INSURANCE
Title insurance was introduce in Canada just over a decade ago, and is now an accepted part of the home-buying process. Title insurance protects buyers against problems that may slip past a title search.
The title to a property describes who has the rights of ownership to it, and there can be a variety of issues in determining "clear title". These could include liens on the property because taxes or contractors havenít been paid. The previous owner may have done renovations without a permit or ignored work orders from the municipality. Part of the property such as the backyard deck or roof eaves could also be encroaching on a neighbourís property.
There are several reasons why title insurance has become popular. It primarily offers broader ownership protection, especially from mortgage fraud.
Whatís the most common claim made under title insurance policies? Property taxes not paid by the previous owner. There are fewer claims involving repairs done without a work permit. Fraud is also involved in a small percentage of claims, representing about 2.5 per cent of claims filed in 2004.
DEFINITIONS TO KNOW
ALL RISK OR ALL PERIL: The term "all risk" or "all peril" describes insurance for losses due to a wide range of causes. Instead of listing each insured peril, such as fire, lightning, and so on, the policy covers all loss or damage to insured property that is the result of any "risk" that is not specifically excluded. "All risks" is a confusing insurance term and does, in fact, incorporate numerous listed exclusions, allowing coverage to be priced more fairly. Perhaps a better description would be "all common risks".
BY-LAW ENDORSEMENT: When construction codes and zoning bylaws change, existing building are usually exempted. But when a severely damaged building has to be substantially rebuilt, the entire building may have to comply with current standard. The "by-law" endorsement covers any additional expenses to bring the building up to standards.
COMPREHENSIVE POLICY: The term used to describe a policy providing broad protection. This is sometimes also referred to as "All Risk".
COVERAGE LIMITS: In addition to overall dollar limits for liability, there are sub-limits on the amount that can be claimed for some items. Some items typically subject to coverage limits include negotiable securities, cash, garden tractors, computer software, bicycles, jewelry and gems, watches, or collections (coin, stamp, card, etc.).
DEDUCTABLES: Most insurance claims are subject to a deductible- the initial amount of every claim that is paid by the policyholder. Deductibles help make insurance more affordable for everyone by eliminating minor "nuisance" claims.
DIRECT LOSS: The term used to describe the loss or damage of insured property or goods. The term does not include other losses or expenses incurred as an indirect result of the damage, such as having to rent a video camera if one is destroyed by fire shortly before leaving on a trip.
DISCOUNTS: Some insurers offer discounts or other incentives for policyholders who install smoke alarms, sprinkler systems, and monitored intruder alarms. Some reduce premiums for seniors. Some insurers offer discounts to loyal, long-term policyholders. The insurer may also be willing to offer a discount if they insure both the car and home with them.
DWELLING: Your "dwelling" coverage applies to you home and "attached structures" such as a garage or carport. Permanently installed outdoor equipment on the premises, such as a swimming pool and the equipment attached to it, is included. Building materials for use in construction, alteration or repair of the insured dwelling or related structures on the premises are covered as well if they are on the site or adjacent to it.
GUARANTEED REPLACEMENT COST ENDORSEMENT: This endorsement will make up a shortfall in the event that the replacement cost of the home is underestimated.
NAMED PERIL COVERAGE: This is a policy that covers losses that result from causes specifically listed. This is the opposite of an "All Risk" or comprehensive policy.
PERSONAL LIABILITY: The personal liability portion of home insurance applies at home, or anywhere in the world for bodily injury you may unintentionally inflict on others- often referred to as "third parties"- or to accidental damage you may do to their property.
PERSONAL PROPERTY: A home insurance policy will cover the contents of the home and other personal property that is owned, worn or used (including clothing, cameras, furniture, etc.) while on your premises. It may even cover uninsured personal property of others, excluding roomers or boarders who are not related to you.
RISK: Term used to describe a chance event that is unexpected and accidental as far as the policyholder is concerned.
SUBROGATION: The term used when an insurer tries to recover some or all of its costs in settling a claim by suing others responsible for the loss. The effect is roughly the same as if you sued the responsible party, except that you are compensated faster by your insurer.
UNINSURABLE PERILS: Home insurance is generally intended to help policyholders cope with the financial consequences of unpredictable events that are "sudden and accidental". Predictable events such as flooding of a home built on a flood plain, or preventable events, such as frozen indoor pipes, are not covered. The perils that are generally uninsurable include water damage caused by floodwaters, or damage caused by the freezing of indoor plumbing.
Quoted from The Canadian Real Estate Association
Publication dated 2005
"DEALING WITH AN UNREALISTIC SELLER"
A rise in "For Sale" property inventory has halted or slowed housing price appreciation in many markets, and sent prices down in others.
But analysts say home sellers are often slow to make price adjustments in a down market, clinging to overly optimistic estimations of a propertyís worth. Sellers who are under pressure to unload property are willing to make adjustments, but those who can afford to ride out the downturn may stick with their asking price, even if they arenít getting offers.
The tendency of prices to be "stickyí in a down market can create headaches for Real Estate Agents and Brokers, who can find it challenging to get sellers to set a realistic price when listing, or make downward adjustments when thatís what the market dictates Many say that if sellers wonít get real about pricing, itís best to send them packingÖa seller with unrealistic price expectations and a weak Realtor is a "recipe for disappointment and disaster," says Steven B. McWilliam.. " The weak Realtors, in desperation in order to obtain the listing, will contract to list the property for the sellerís unrealistic price. When it does not sell, and in some cases it does not even get shown, they suggest lowering and lowering and lowering the price" McWilliam says.
An experienced Realtor has the knowledge to assess the market and will provide a comprehensive comparative market analysis, which is the best gauge as to what price the house ultimately will sell, McWilliams says.
"We present these numbers to the sellers and if they refuse and demand more money, we simply suggest that they deal with another Realtor," McWilliam says. "We want to sell their home, not just list it. You have to be able to walk away from these bad deals".
Broker Christine Forgione of Carollo Real Estate in Queens, N.Y. says if she is listing a home that will require renovations, sheíll factor in the cost of work that buyers will need to have done when pricing the house. After holding an open house, sheíll use past sales from the MLS system and buyer feedback to decide if a seller needs to make a price adjustment.
"If my seller will not adjust the price- and I feel that I cannot sell it at that price, because honestly everything sells if it is priced right- then I will give back the listing," Forgione says. "I cannot stress enough that taking an overpriced listing is like taking a car with no engine- it wonít go anywhere."
Sheryl Vogel, a Rockland County, N.Y. broker allows sellers to choose an asking price with her guidanceÖ." If they wish to ask higher than my suggested range, I will ask them to sign a letter stating that they have opted to start at a range that was not suggested my me, the professional," Vogel says.
If a house has been listed for 21 days without any offers, Vogel says itís time to reevaluate the asking price. "If nobody is showing their home, that is an indication that the buyer pool and Realtor community have not accepted what they are offering,í Vogel says.
Every seller needs some prodding, she says- nobody wants to feel like they are losing money.
But McWilliam advises against allowing sellers to set an initial price thatís higher than the market will bear.
"Sellers ask us, "Canít we at least test it?" I tell them no, I am in the market every day. I know what itís worth," Mc William says.
The problem with starting out with an inflated asking price as a starting point for negotiations is that some buyer who might be interested in the house will never bother to look at it, because they think it is out of their price range, McWilliam says. At the same time, the same house will not compare favourably with homes in the same price range that have been truly valued.
"When you list a house thatís worth $300,000 for $325,000, the person who comes to look at it is comparing it to the really truly priced $325,000 house," McWilliam says. "The people looking to buy a $300,000 home are not looking at yours because itís too expensive. Youíre being seen by the people that donít want you, and the people that do want you arenít seeing you because itís not priced right."
Once the house has been on the market for weeks, the seller may agree to lower the price- only to find that time is not all thatís been lost.
"When youíre on the market 60, 90 or 120 days and you start marking the price down, every buyer asks "Why it has been on the market so long?" Whatís wrong with it.?" McWilliam says" We say, "Nothing- itís because it was priced too high." They say, "Really? I wonder what the bottom is."
Some sellers will decide to wait until the market catches up with their asking price, and remove their homes from the market.
"When they want to sell, theyíll sell it," McWilliam says. "When all that stuff shifts away, weíll have true inventory- not just people that are going on a fishing expedition."
Understanding a clientís motivations for selling is important in determining whether they can be persuaded to set a price that reflects the realities of the market.
"When you really consult with a seller instead of trying to sell them and you find out why they are really selling and if now is the best time, objections are easy to overcome," says Marguerite Crespillo, the founder of Realty First Real Estate and Mortgage Services in Roseville, Calif.
Unrealistic sellers are often "part of the generation who has not seen a fluctuating market," Crespillo says. "They have been able to move up a couple of times and put money in their pocket. It was easy and homes sold quickly, but that was not realistic."
That makes pricing a home tricky, because "the comparables for the last three months are really irrelevant," Crespillo says. "The price you put on a home has to assume a declining market, and must be priced accordingly or everyone will be frustrated."
Like sellers, many newer Realtors have only experienced good markets, and donít know how to explain pricing in a down market, Crespillo says.
"When explained properly most sellers understand," she says, but many Realtors have been taught to get a listing at any price to attract buyers. So, "they let the seller dictate the price instead of using their own knowledge and experience to guide them."
The end result is often frustration all around, ending in an expired listing and the seller moving on to another Realtor who gives them better advice on the asking price, Crespillo says.
"I think the reasons sellers are stubborn have more to do with the reason they are selling than the actual price," Crespillo says. "If they still remain stubborn after all has been explained to them, then I simply tell them I am not the best Realtor for them, and I would be happy to refer them out to someone else. I would rather bow out gracefully than be kicked out later for circumstances I cannot control."
Morgan Hill, Calif. based Realtor and broker Robert Whitelaw have similar views.
"I personally believe that the only time you lose in real estate is when life forces you to sell, such as death, divorce, job loss and/or job relocation," Whitelaw says. "We have a whole generation of people who have not seen a challenging market. Meaning that those who entered the market in the last seven year have been able to purchase a home and sell it two years later for a substantial increase. This is not, nor ever was realistic for any considerable period do time."
Whitelaw says that if a client insists on an inflated asking price, he will first try to sway them with numbers, including comparable sales and local market analysis.
"If they continue to insist with the "We can always lower the price later" argument, I will consider taking the listing, but only if they agree -in writing- to a schedule of price reductions over the course of the listing," Whitelaw says.
While trying to advise and inform consumers and clients on general real estate matters and concerns, please be advised that all information displayed in this web site is for informative, and educational purposes only. While striving to present concise, pertinent and accurate information from many sources, this information should be verified from experts or professionals in that applicable field.