Seller’s Market for How Long?
Originally appeared in Bay Area News Group publications on October 26, 2012
Human beings consistently fail to learn from history. If you are or will be in the market to buy or sell a home, not paying attention to the past could cost you dearly.
Real estate markets are temporary
Regardless of how long they last, buyer’s, seller’s and “normal” markets change. Some believe the current seller’s market in the East Bay will get increasingly hotter. It may or may not. Looking at previous markets, incorrectly assuming things will continue as they are has been very damaging to many a buyer and seller.
Common sense actually works
In past seller’s markets, especially the one that flamed white-hot in 2004 and 2005, properties commonly sold at prices that defied common sense. This continued through early 2007 and then the roof came tumbling down. I constantly see homes purchased during this period that, in today’s market, cannot be sold for anything near what the buyer paid.
From the buyer’s point of view, just because some are willing to pay a highly inflated price in order to “win” a bidding war, does not mean this is the right move for you. Do your homework; if the price doesn’t make sense, don’t pay it.
From a seller’s perspective, the problem is not that buyers may pay too much; it is that you, as a seller, ask too much. This results in no offers at all. Regardless of the hype of a “seller’s market,” the market speaks and you need to listen
Many sellers incorrectly maintain that they must add a substantial amount to their asking price to anticipate buyers who will bargain it down. Real estate professionals will tell you this is the wrong way to handle pricing, yet the urban myth continues.
In any market, homes that are perceived as fairly priced for location, condition and features will sell within a few weeks. It is better to list a bit under market value and create greater interest than to add a premium and have your property sit unsold.
Condition is critical
My constant refrain is that condition of the property is the most overlooked and least understood aspect of the home buying process. Logically, houses that have been upgraded and are in pristine condition sell more quickly and for higher prices than those that need substantial repairs.
In our last seller’s market, even homes with significant deferred maintenance sold fast and with multiple offers. A number of those “fixer” buyers are now in the proverbial money pit.
What has been spent on repairs and remodeling must be added to the purchase price to determine how much the house needs to sell for so the owner can walk away whole. Conversely, unrectified problems may have worsened. Regardless, fixers are more difficult to sell in this market.
Understand the economy
Our real estate market does not exist in a vacuum. It is inextricably intertwined with the overall U.S. economy. Thoughtful buyers and sellers ask themselves how changes in the economy and monetary policy might affect real estate in the future.
As an example, current interest rates are at all-time lows. Combine that with extremely low inventory and we have multiple offers on many homes; i.e., a seller’s market.
Our government is trying to boost real estate because it is the engine that drives a large part of the U.S. economy. What will happen, however, when interest rates rise from this artificially low level?
Clearly, higher interest rates make home buying more expensive. When and how high future interest rates will rise and how that will affect real estate are unknowns, but should be closely followed.
Some respected financial experts and economists project the near-term future of the American economy to get worse, not better. If that is correct, how does that impact the timing of your decision to buy or sell and for how much?
Be an educated buyer or seller
A relatively small percentage of real estate buyers and sellers invest the necessary time and effort into being well informed. The best way to get ready is to hire a professional, knowledgeable agent, as early in the process as possible, and tell him or her you would like to learn about what you don’t know in real estate. Remember that the top agents are not primarily salespeople; they are competent individuals who educate you and put your interests first.
Read the business section of various online sites and the real estate sections of local newspapers. This will give you an up-to-date picture of what people are saying about the market and economy. Learn to separate what is media hype from reality.
Final Thoughts
The present market offers opportunities for thoughtful buyers and sellers. Buyers who understand the components of value, are patient, and make offers accordingly, can lock in once-in-a-lifetime low interest rates. Sellers who have equity and a strong reason to sell can take advantage of less-than-usual competition and higher prices than not too long ago.
Whichever side of the sale you might be on, do yourself a favor and avoid the mistakes that others in our community are still regretting.
Related Articles:
Condition: What Your Agent Should Tell You