Ever try to make sense or monthly home sales in your market? You have not made a sale in months, units sold are in the tank, and yet the latest monthly statistics show the average home price in youar area is rising? How can you explain this to a homeseller that you are trying to get them to price their home to sell so it is not on the market for 5 years! How deep do you go into the sales statistics to see what is selling? Before we get ourselves crazy, it is important to step back and think it through. There are always real answers for our questions! Here is my take on the numbers.
What the numbers do not tell you is if the sellers made a profit? Did they make money or lose money? Since this is a buyers market with an exponential amount of homes for sale, and many of them are not selling. It means the buyers are being overly selective in choosing the best home for the money. If you check your statisics you will find persons will pay a littile more money to get everything. In many markets that will translate into buyer will pass on a 3 bedroom home and instead buy the 4 bedroom! The buyer will buy a home with a full finished basement with a recreation room and meia room vs, the home on a slab, If you had a choice of the home with Formica countertops or the home wiht upgrades ganite counters wiht all new stainless appliances which would you choose? Would you choose the home that on a scale of 1 to 10 was a 15 for just a little more money? Hardwood floors, crown molding, a second kitchen, an inground pool, an updated gourmet kitchen or a sunroom may add a lot more to the value of a home raising the bar for price, but the reality does not mean the seller made more money. It means they were smart enough to realize what it would take to sell a home, rather than just list a home! I'd love to hear your thoughts are on this topic!
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That's an interesting take, it makes sense, after all the people who are buying today are more highly qualified than in previous years.
Jim,
It is the same thing that I tell my Builders and Rehabbers. The Buyers don't care if you used heavy duty nails and extra glue. But that can spot cheap carpet a mile away.
Brian I view it as "The most bang for the buck!" A buyer's market does not mean the buyers are "cheap." A buyer's market means buyers are "selective!"
Brad I agree
Herb that is exactly my point! A little bounce in price means the home with upgraded hardwood floors through out will sell at slightly higher price...it does not mean the price reflects the purchaser recouped their costs in that price. There is an erroneous assumption home prices continue to rise in a softening market.
Jim, in my market the buyers will always purchase the home with the granite etc... unless it is way above the price of other homes in the neighborhood. I think the sellers did what was right to sell their home, when I am ready to sell I will do the same things. I've seen it happen over and over and over.
I ran into this very problem yesterday on a listing appointment. I was trying to get the sellers to be realistic about pricing, but the three months of market studies showed one with a signficant INCREASE in average and median sale prices in the zipcode. Your point is a good one - and this property was in a million dollar neighborhood without the million dollar features like granite and tile and professional decorating (or staging) or impeccably landscaped grounds... I'm thinking the best properties are continuing to sell (34 of the 51 properties listed since Jan.1 DID sell!) - the market is tough, but it's not dead.
Jim - This is the first explanation that makes any sense at all. I can tell by doing reports that we have almost twice the inventory and equal or fewer closings taking place. It stands to reason that only the most desirable homes are being purchased. Desirable doesn't necessarily have to be updated, but rather priced to sell. Thanks for this insight.
Jim - In our market the houses almost have to be perfect! We have such a glut of new build homes for sale that existing home sales are really struggling. Granite wins out everytime! If I were going to sell my home it would have to have the upgrades just to compete.
I have found buyers to be a bit more savvy than before and won't settle for something that does not "have it all."
Jim,
When I go on listing appointments now..I try not to just focus on the inventory or competition within their neighborhood. I stress that the whole city is their competition as well..maybe not every community stacks up against theirs...but most do. It effects their pricing.
Missy improvements, updates, and cleanliness sell.
Margaret thanks for the reply. Just because they are in the neighborhood of higher end homes does not cut it. It is amazing how homeowners with nice homes, and no updates think that because there are newer homes nearby, or million dollar homes on a tear down lot next door makes their home more valuable.
Adam thanks! Like I said the higher number does not tell you if it was forclosures, bank owned, or a fire sale.
Linda perfection is a major plus!
Neal how true! That is why they call it a buyer's market!
We have had so many products introduced in large numbers in the last 3-4 years in our markets so really pricing according to median or average doesn't mean much in Las Vegas. Condo Conversions, Patio Homes, Courtyard Homes and High Rises have had a profound effect on the median/average price. With the massive closings of high rises, I expect our median & average prices to jump in 1-3 years.
Wow, Jim - your logic is so "right on" - but how to quantify that definitely presents a problem. I'm facing the same issue with a listing of mine - it's a great townhouse - 2 master suite - but NOW, in THIS market, nobody wants 2 master suite, they want the 3rd bedroom (even though they'd be hard pressed to even put a desk in it it's so small)... so I'm finding myself marketing against the condo market - why buy a 2br condo when you can have a fee simple townhome... anyway, thanks for the insights!
Jim - Great insight. Now more than ever it is important to preview properties so that you can see what the MLS and the numbers don't tell you.
Jim - Your topic hits home more than you know!!! We have a home for sale right now. It is a 3 bedroom 1.1 bath home on a slab. All major replacements...new windows, roof, siding, soffits, fascia, furnace, A/C, hot water heater, freshly painted, new 6 panel doors and trim. Great curb appeal!! About 3 weeks into the listing the same model home around the corner came on the market for $15,000 more than us and the only difference is they had a remodeled kitchen with corian counters and oak cabinets and we still have the original kitchen. (Both homes were built in 1985) Not a bad kitchen but not updated. That one went under contract in 32 days and has since closed and we are still on the market. We have also dropped our price $5900. We are priced now where these were closing at 2 years ago. It is a nice home. We know for a fact that the people that bought the other home looked at ours also. They obviously saw the $15,000 value in the updated kitchen. Our sellers understand that, but now we can't give this house away. It really is frustrating for both parties!! (Us and our sellers). We have re-evaluated price, we have replaced light fixtures, we have done staging. We have had broker tours, open houses, price reductions, cancelled it in the MLS and put it in as new. They realize the state of the market. They understand it is not for lack of effort on our part. Buyers are just being extremely choosy! Thanks for this post! It just helps re-affirm all of our thinking!!
I sold my personal residence in April of this year.
Our house was about 35 years old. During the 18 years we owned it we:
And just before putting it on the market we installed new carpet, painted the interior, and replaced all the light fixtures.
It sold for full price in 2 days to the first buyer that looked at it.
We made money.............lots. ;-)
Jim,
Your explanation was easy to understand, and I appreciate it....Thanks.
Renee in this market, I do not know how to project out that far. Things seem to be changing rather quickly. At some point, the median price will shift. If rates increase the shift will be down. If supply stays very high it may also drop.
Jennifer, the sad thing about a buyer's market is that there are so many homes for sale it is like being a kid in a candy store! It is hard to make up your mind what to buy!
Dan we have to be familiar wiht the products! We all need to take out the magnifying glasses!
Rick and Lynn Buyers want the best deal, and they do not want to buy a project. So sometimes, dropping the price is not the key. Makiing the improvements is!
Jim Lee - Equipped not stripped is the key!
Kathy I try to keep it simple so I can understand it myself! LOL! :)
Jim- But if they are not willing to do the improvement than sometimes a price reduction is the only option. Someone was willling to pay $15,000 more for the same home with a updated kitchen. Our clients are not willing to spend the money to redo the kitchen so perhaps at the right price, someone would be willing to buy a house without an updated kitchen knowing that redoing the kitchen would increase the homes value. Our sellers are just having a hard time justifying spending $10,000 to redo a kitchen in a home they have no intention on living in. Can't blame them for that!
Rick, of course not everyone is willing (or financally able) to update or remodel before selling.
Discounting the price to cover deferred maintenance or functional obsolescence works too, just not as well.
At the "right price" I would be willing to buy any home anywhere.
Rick and Lynn I disagree where you are heading...Not in this market. You are making the fatal mistake to think this market is like other slow times. It isn't. This is the beginning of a shift. Sellers that don't change major objections will sit and not sell. It is like the seller that says "I want to sell, but I do not want to give it away!" The simple truth is they will not sell. They are inflexible.
Jim Thanks! I guess every market is soft and some are different, but in most markets inventories has risen, and will continue to rise at leas into mid next year. Most markets in resales are off in units of sales. I believe that price alone will not do it. I believe it will be both...price and upgrades. In our market in Atlanta it really tanslates into 1 home in 10 will sell. Why? Why is one home perceived a better value than the others? Because it is loaded. Why buy the Ford Taurus if you can buy a newer Cadillac for the same money?
Jim - We don't like price reductions either but what other choice do we have. Remodeling the kitchen is not an option at this point. It's kind of funny because we have had this discussion with our Broker/Owner who keeps suggesting price reductions to overcome the short comings of the kitchen. We did one price reduction and at this point we don't see another price reduction being an option and obviously our seller really don't want to drop anymore either. It is a really nice home!! Great for downsizing or for your first time home buyers! We have been in this business for a long time.... we have never really been in a quandary like this!
Rick and Lynn thanks again...Have you ever been in a market like this? It is going to take both. In a normal market price reductions would work. I recently sold a home where the owner made some major renovations on a fairly new home. The comps would say they did not have to do this, but the home is now sold. Others are still sitting. The buyer told us it was perfect. The seller was very happy to have sold.
Jim- We started in 1996. Things were slow back then but we agree, very different from today's market! Right now, remodeling the kitchen is not an option so I guess we will have to hold tight for now. The up side is...our client are aware of all of this. We have been upfront with them and they realize that the lack of results is not because of lack of effort, marketing or whatever you want to call it on our part. They have expressed that they are happy with the services we have provided for them to this point. We guess right now that is all we can ask for. Thanks again for your time and views on the topic!
Anytime! Sometime we have o play devils advocate. What happens if not selling becomes the option? When we represent sellers, we are their agents, but we are hired because of our experience. They lisen and act upon our advice. We must ask ourselves in this market what is the woorse that can happen. Can the sellers live with that? This is not pessimism on our part, but professionalism. Do you personally feel the market is going to get better int he near term or worse? How long the softening? I am not asking you to answer this...but the seller will be acting on our advice. I try to give the sellers the best possible advice, and back it up with data.
Jim - I have noticed the same thing here in Indy. Homes are selling - the ones which are nice, raedy for the market and have the amenities the buyers want. Excellent Point!
Paula thanks! I think last yuear they would have sold for a lot more also.
Hello Jim,
In the Vancouver / Camas real estate market I think we are also seeing Sellers much more willing to throw in Concessions, such as Buyer Closing costs to the extent allowed by Law and the Lender. When 3% in Buyer Closing Costs are built into the Sales Price, and not purged by the MLS system; the resulting MLS reports tend to get an unreasonable upward bias in home prices.
As lenders have tightened up, we've had calls from appraisers to inquire if a property we listed was sold with any concessions to the buyer. The lenders & appraisers are certainly looking to neutralize the inflation effect of Seller Concessions.
John
Alexander You raise a very valid point. What is the real home sales price? When I do a Competitive market Analysis CMA, I always deduct the seller contribution to the buyer's closing costs. Since a sale is really about what you walk away with, iisn't it important to know the real number? It makes quite a difference when the seller sees that number when the other sellers are paying 3% or more.
Good post Jim. I try to convey to the sellers that if they don't uprade the home, the buyer will just go around the corner and buy the one that is upgraded. But, I am getting "formica" offers on "granite" houses! But better than no offers at all. LOL
Andy I love it! "I am getting "formica" offers on "granite" houses! But better than no offers at all. LOL" I just met with a seller this evening, that has been on the market for over 2 years, their agents never mentions any basic strategies to sell the home. Strategy starts with telling them the truth!