The Value Gap, Sellers vs. Buyers Value

Today there is definitely a gap between what the Seller thinks their property is worth and what the Buyer is willing to pay, I call this the Value Gap and it is getting in the way of successfully selling properties. It seems that in this market the gap has widened to such an extent that Buyers are not showing interest in properties that at one time they may have. In trying to figure out why so many properties are sitting without Buyer activity I did some reflection and came up with this scenario.

I believe that the Seller is looking at their property in terms of Book value, which is the price they paid plus all the improvements and appreciation. So on paper they have a price that they feel is justifiable.

From the Buyers perspective they are looking at what they can afford to pay. The Buyer looks at their monthly cash flow and calculates how much they can afford in mortgage, taxes and utilities. Then they look at the money they have available for a down payment and the results is the amount they are willing to spend on a house. Then they start looking at houses in their price range. If the Buyer is savvy they will contact a Realtor and ask them to do a Comparative Market Analysis (CMA) to identify the type of house that they should be able to afford.

The Value Gap problem arises when, based on the CMA, the Sellers Book Price is too far above Market Price. As Realtor's we know that Market Price (the price Buyers are willing to pay) is where the property should be listed at. However, the Seller is holding onto their paperwork and does not always understand why they cannot get their Book Price for their property. When the Gap between Book Value and Market Value is close, say within ten percent, Buyers might be willing to make an offer. But when the Value Gap is larger, like it seems to be today, Buyers are walking away from the property. In fact, with the search engine technology available today, the Seller's Property is probably never even seen by the Buyer.

The result is the overpriced property sits without any activity and the Seller is discouraged wondering why. Maybe this Value Gap perspective will help Seller's understand that the only price that means anything is the price a ready, willing and able Buyer will pay for the property.