Market Change?

By
Services for Real Estate Pros with Whitecomb.com, LLC

I've heard a lot of talk about when the real estate market will return to back to normal and level itself out. With that, I've heard an assortment of timelines such as (Spring 2007, Summer 2007, Fall 2007, sometime in 2008, etc.). What are your thoughts regarding the market and when will it change (or is it changing already)? I know the word "change" is very open-ended in terms of the topic, but figured I would ask. 

Personally, I've contemplated listing my home in March of 2007 (I told myself I would never move again..yeah right). Right now, I am a little hesitant based on the market (from what I've heard) , but wonder if things will change in the Spring or if I should stick it out and just wait. Specifically, I am wondering about the Chicagoland market, but would like to hear about other markets as well.

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Rainer
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Bonnie Erickson
The Realty Matrix - Saint Paul, MN

You can sell your house in this market as well as any other if:

  1. You choose an experienced REALTOR who knows marketing and pricing for a down market
  2. You prepare every corner of your home for sale by cleaning, decluttering, depersonalizing and staging.
  3. You listen to your agent regarding house preparation and pricing.
  4. Remember that greed for more money slows the sale and when you sell, you become the buyer who gets the good deal on your purchase.  It balances out.
Jan 04, 2007 11:45 PM #1
Rainer
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D. Comber
Whitecomb.com, LLC - Chicago, IL
Whitecomb Dot Com
Thanks Bonnie, great comment. It sounds as if you are indicating that the market is independent of a home being listed properly and by the right professional. I agree with every one of your notes. Is it more common to see a lot of reduction in prices in a slow market or is this a cause of just being overpriced per the past market? 
Jan 05, 2007 12:33 AM #2
Rainer
270,593
Bonnie Erickson
The Realty Matrix - Saint Paul, MN

My answer to your question may seem like I'm trying to weasel out of it, but I'm not.  When the real estate market is a sellers' market, there is little inventory and lots of buyers.  Because there are more buyers than houses, buyers are willing to pay more for the house in order to "win" it.  The correct price for a house in a sellers' market is high.  In a buyers' market (which is what most of the US is experiencing), the market is flooded with too much inventory and not enough buyers.  As a result, the houses are now competing for the buyers by reducing their sales price.  The price for the same house is CORRECT in each market.  The market is what generates the market value of the house.  Market value=what a ready/willing/ and able buyer is willing to pay for the house.  It's basic economics 101:  the law of supply and demand.

Jan 05, 2007 12:52 AM #3
Rainer
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D. Comber
Whitecomb.com, LLC - Chicago, IL
Whitecomb Dot Com

I dont know where my comment went wrong, but I guess I was just inquiring vs. trying to create a challenge. Im sorry for not being as precise, but what I was trying to ask is are realtors seeing more prices change in this market vs. other markets (buyer vs. sellers markets). I just wanted to gauge if there was a trend of more "PCHG" now versus days past and if price changes are reflective of homes being listed inappropriately and then having to be changed to reflect the market. 

Per your comment, who decides what the asking price is for a property (in a location, in a subdivision, in a complex, or on a block)? Is there an empirical formula that someone uses? My assumption would be "well, that one over there sold for xxx dollars, you have nicer appliances and newer carpeting, so let's add five thousand to that and see what happens.." 

There's no MSRP on homes...so who decides and changes the pricing median? Is it just one seller who adds a few thousand to their price (in a new prime season, better home, etc.) or do realtors have a mathematical formula to decide this based on previous listings? Or, is it simply a matter of increasing prices on past sales? 

 

Jan 05, 2007 02:51 AM #4
Rainer
270,593
Bonnie Erickson
The Realty Matrix - Saint Paul, MN

This agent, meaning me, checks weekly for new activity in the vicinity of every listing I have because the price the home may have started out at, was not necessarily reflecting the price the market was showing this month.  Because the switch from sellers market to buyers was so rapid, we have had to keep a finger on the pulse of the changes and make those changes in our listings.  The sellers who have been able to see the reason for reducing the price, have done so and sold.  Those who are holding out for last year's prices have not sold.  The President of NAR (National Association of REALTORS) himself admitted this fall to the media, that he did not listen to his agent's plea to reduce the price on his million dollar+ listing and as a result, it did not sell.  He publicly said to the world that he blew it and should have known better!  

Regarding trend of more price change in which market.  When the sellers market started (I call it "The Feeding Frenzy" because buyers became insane to compete for the house), prices were leaping by tens of thousands each listing.  I was not a listing agent during that time, but would assume the listing agents were doing the reverse of what I am now doing in a buyers' market, keeping close tabs on the neighborhood activity (each new sale) to reflect a price change with their listings.  It didn't matter whether the house had a high list price during the sellers market because multiple offers were forcing the prices up.  Agents were leery of presenting offers that were many thousands of dollars OVER the list price and yet they were losing to someone who offered even more.  In a sellers market, it is clear who is driving the price up because buyers are saying it out loud and clearly in their inflated written offers which sellers happily accept.

In the buyers market, the buyer is the one dictating the price as well.  However, unlike in the sellers' market, the stall happens during the switch because the sellers are unwilling to accept the "deflated" offers which the buyers are now bringing to the table.  As a result, market time lengthens, more houses come on the market glutting the inventory even more, and buyers choose a different lower priced home.  It takes a long time for resistant sellers to come to terms with this "loss".

Figuring out the suggested list price is not based on a formula.  You have to find houses close to the listing that are similar style, age, square footage, number bedrooms and baths, etc.,  and have sold recently (not an easy task in a stalled market).  That shows the seller what the buyers are willing to pay.  If nothing has sold, chances are really good the buyers are not willing to pay the prices that the houses are listed at.  That determines that the market value is decreasing. 

The one who ultimately decides what the asking price for a property is is the seller.  The one who determines the market value (what it sells for) is the buyer.  If the asking price is not close to the market value, the house does not sell.  Overpricing is a kiss of death for home sales.  In real estate, the median price changes based on actual sales.  In today's market in our area, even the new construction properties are being discounted or incentives are being offered. 

As to "well, that one over there sold for xxx dollars, you have nicer appliances and newer carpeting, so let's add five thousand to that and see what happens.."  I'd fire the agent that made that statement.  For one thing nicer carpet and appliances are not worth that in our area and they don't increase the value of the home, they shorten the market time.  See what happens . . . the most interest in the house is when it is first listed.  When the house doesn't sell the perception is that something is wrong with it.  Statistics show that an overpriced home (let's see) stays on the market longer and ultimately sells for less.  That's why pricing advice is the one most important piece of the marketing that an agent does.

Jan 06, 2007 11:09 AM #5
Rainer
5,664
D. Comber
Whitecomb.com, LLC - Chicago, IL
Whitecomb Dot Com

Thanks Bonnie for your post...it would really make me wonder when I heard the president of NAR say such a thing...but then again, it puts things in perspective. I hope your dues are not too high...

From the way I read your comment it appears to me that price, in essence, is relative. There is no MSRP on homes, just data from past sales. For example, if the last three sales of homes (typically alike) sold for say $250,000, wouldn't an agent say, "Lets list at 250,000"? In my experience, no. Why? Because there is negotiating room in real estate. A house that may sell for 250,000 could be listed at say 260,000 (higher/lower). A buyer puts in an initial offer, and the seller decides if it is acceptable or not. Eventually, both sides come to an agreeable price and then the contract gets sent to attorneys. Now lets say that the 3 houses sold for 250,000 (typically the same) back in May and they were all listed at 260,000. Okay, based on the previous 3 sales, what should be the price now? 260,000, 255,000, or 250,000? Somehow the house gets listed at 264,900...Why? 

New year? Change in the market? Interest rates lower? Just a guess on what buyers will pay? You tell me. Essentially, if I lived in a subdivision (let's say condos) and the past 3 sales were at 250,000 (typically alike) and all listed at 260,000, what stops me from listing it at 264,900, 270,000, or higher? I could list at 280,000, but the agents buyer and the buyers themselves will know what the past sales were and DECIDE themselves what the appropriate initial offer is (besides, its public information). Its not like buying a sweater in Macy's that has a sticker on it for $60.99. You can't go up to the cashier and say, "Well, I give you 50.00 dollars for it...". That's the price, $60.99. With real estate, its all negotiation, there is no "set" price. From what your saying, price is determined by the buyer in any market. 

I dont think sellers are "resistant" or "unwilling to accept a loss", but are trying to get the most for their home. In most cases, this is the highest value asset they own. Unfortunately, this gets lost in transalation. If a seller becomes "resistant" to an offer because of the initial or following bids, its their choice. True, it may increase market time, but that's their choice. It sounds as if real estate professionals scoff at this, but its the seller's choice.

Sellers who take a huge reduction in price have a reason for doing so. A lot of equity in the home, job transfer, financial situation, bought another home and need to sell the current one, etc. People who put themselves in these situations are just asking for trouble as it is. Also, it seems as if some sellers expectations are just plain ridiculous as they have a bias towards their home and feel it should go for more than any other home in their locale. You could say this is ridiculous, but then again, its their home.

If I called 3 agents and asked them to tell me what my home should be listed at, what's the odds that they would all say the same listing price? Probably as good as the Chicago Cubs winning the World Series. Who do and should consumers listen to? Let's say my neighbor sold his house for 560,000 (the same house in terms of layout, BR/BA and "upgrades") what should mine be listed at? I would bet you my 401K that I would not get the same price from 1, 2, or 3 agents in terms of a listing price.

Are these bad realtors of just difference of opinion? 

 

Jan 07, 2007 02:32 AM #6
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