Shifting Market Strategies
Originally appeared in Hills Publications, June 23, 2000 and ANG Newspapers, June 24, 2000
As reliably as the four seasons, residential real estate goes through cycles. The market has changed, and your strategy as a buyer or seller must take this into account.
If you understand and accept current reality, you will benefit financially. Conversely, acting inappropriately could cause you to suffer a serious financial setback.
What is different
January 2000 began an unprecedented fourth straight year of intense demand for homes in our area, accompanied by extremely limited supply. Multiple offers by 15 to 30 buyers became commonplace.
Continuing the 1999 trend, overbids of $100,000 were now routine and were superseded by ones of $200,000 or more. Buyers and sellers came to expect this type of craziness.
What was once a raging seller’s market is suddenly one that is still speedy, but somewhat less insane. Higher interest rates, stock market uncertainties and record high prices have all had their effect.
Three to four weeks ago, inventory increased dramatically. Whereas earlier in the year there were 20 to 25 newly listed homes on a Thursday brokers’ tour, now there are 60 to 75. . So great a number of properties is too many for any Realtor to see in one day.
Inevitably, almost all recent listings have had fewer agents at the brokers opens. It is obviously difficult for an agent to recommend a listing he has not seen. Limited previewing leads to fewer showings, which contributes to a reduced number of offers on all but the most special properties.
I have two new, well priced listings in excellent areas. Three months ago they would have attracted over 100 people at Sunday open houses. In contrast, they have drawn substantially fewer. The turnouts at brokers’ tours have also been disappointing.
One of these listings had three offers and is in escrow. In March, I believe it would have had 10 to 15 bids. It appears the other listing will have a similar result.
Buyers need to be careful not to miss opportunities by assuming a house will receive a plethora of offers. Make sure your agent follows up on how many actual bids there are. Although prices are higher, this appears to be the best time for buyers in the past 18 months.
What may change
Buyers should watch dates for presenting offers on new listings. For the past two to three years, sellers, acting on agent advice, have dictated the day they will entertain offers. They will not look at bids prior to that date.
It would also be prudent for buyers to check time-on-market for listings. More than two weeks could give the seller less leverage.
If the market continues to level off, more sellers will follow normal practice and take offers as they come. As multiple offers are still common, we are not yet at this point, but in time it will happen.
Fewer multiple offers will lead to a slower rise in prices. When prices stabilize (I did not say decrease), agents will tend to price their listings nearer to recent closed sales in the area. Currently, most properties are listed significantly below recent comparables because of the expectation that the price will be overbid.
As the market normalizes, sellers will need to modify their expectations. Most sellers I have met think their house is better, and should sell for more, than their neighbor’s. Be careful not to compare today’s value with one earlier in the year when the market was overheated. If you are a seller who overprices in defiance of present conditions, you will ultimately see a lower net return.
With decreased activity, listing agents may have to market their listings more aggressively. This might include networking, repeat brokers tours (already happening), numerous open houses and well designed flyers and Internet layouts.
When the market cycle swings, as it appears to be doing today, buyers and sellers need an excellent agent more than ever. Look for someone with perspective because he has experienced the various phases. Insist on a local professional who is a good communicator and can explain how these gyrations affect you. Expect to be given this information voluntarily. You should receive answers to questions you may not even know to ask.
Most importantly, align your thinking with the reality of the market. Not doing so could cost you dearly.
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