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Tuesday, October 24, 2006

Cooling Market or Spoiled Sellers?

The Arizona Republic recently devoted an entire section of the paper to the Valley's 'Cooling Housing Market'.  This section also showed home price trends and appreciation rates over the past 5 years.  The Republic comes out with this section at least once a year.  While I don't always agree with, or even believe much of what I read anymore, this featured section had some articles that were right on track.  If you just read the headlines, you might think the sky is falling.  But once I got into the meat of the articles, I found myself agreeing with much of what was said.

The main premise I think the Republic has right is that Valley buyers and sellers are currently in a standoff.  And the 'cooling market' will continue until either sellers give in and lower their prices, or buyers give in and agree to pay more.  Most buyers are not able to 'give in' and pay more, because regardless of credit and income, most mortgage companies simply will not loan the buyer more money than the house is worth.  Therefore, I believe sellers must be the ones to end the standoff.

I really think buyers still want to buy, but sellers are stopping them with ridiculously high prices.  I can't tell you how many real estate agents I've heard say that sellers must face reality and lower their prices if they want to sell.  Often times, sellers will ignore their agent's advice and insist on a higher asking price.  But sellers who don't take their agent's advice when pricing their home are setting themselves up for failure.  Over pricing your home is the best way to make sure it doesn't sell.  Many good agents won't even list a house if the seller insists on asking too much.  Others will take the listing, knowing it's going to sit on the market until the seller comes to grips with reality.

Overpricing your home is the worst mistake you can make when selling.  Even in a sellers market, overpricing a home is risky, but in the current buyer's market it's just plain costly.  Many sellers think they can just lower the price if it's too high, or wait it out.  But it's not that simple.  The first 2-3 weeks your house is listed is the most crucial time. This is when you'll see the most activity and the most interest in your property.  If the price is too high, the home will be bypassed by many prospective buyers.  Some won't even look at it, others will look and then quickly put it out of their mind because it's "too much" compared to other similar houses.  Once a house has been on the market for a certain amount of time, it becomes a 'stale' listing.  People begin to think there must be something wrong with it if it hasn't sold by now, and they don't even look at it.  At that point, lowering your price won't even help unless you lower it ALOT.  In many cases, sellers who begin asking too much end up selling for less than they would have if they had just priced it properly in the first place.  And time is definitely money when it comes to real estate, so the cost of having a house sit on the market combined with a low sales price means the seller really loses big.

I know, I know...it's not fair to place all the blame on sellers (but I'm a real estate agent so what do you expect!).  Okay, there are also plenty of unrealistic real estate agents who are advising their clients to overprice their homes.  Some of these agents just don't know what they're doing and others know exactly what they're doing (listings are a great way for real estate agents to attract other clients, so many agents are okay with having a listing sit on the market forever!).  But deciding on a home's asking price is ultimately the seller's decision, and one the seller should take very seriously.  The crazy sellers market we saw in 2004 and 2005 allowed ridiculously high prices because housing demand was greater than supply.  Due to an investor-saturated market and lower interest rates, people were buying houses like they were going out of style.  But today, that's not the case.  In fact the opposite is true...Valley housing supply is currently greater than demand.  Therefore, sellers have to compete and negotiate to sell.  But after being spoiled by the recent seller's market, many Valley sellers seem unwilling to do so.

I personally think both sellers and real estate agents have become very spoiled in the past few years.  Five years ago, if a neighborhood had an average sell time of 4 months, that was a 'hot' area.  But today, people think a house should sell in 30 days for 100% of the asking price.  That's just crazy and unrealistic.

We've all heard people say that in real estate, the key is "location, location, location".  But in today's tougher market, I would say the key to selling your home is "price, price, price".

Visit Shannon Hubbard's Home Page     Written By: Shannon Hubbard
Realtor®-Investor

Great American Realty, Inc.

Cell: (480) 695-6672
Email me

Posted by Shannon Hubbard, AZ Realtor & Computer Guru on October 24, 2006 | Permalink

Comments

This is the bottom line with actual numbers to stand by.

ARMLS inventory is HOLDING at 47000 units. Inventory has been stable since I noticed 4 - 6 weeks ago. Inventory is stable and Maricopa jobs continue at 24000 new each quarter with 150000 new residents each year and who knows how many new Winter residents. We have the perfect STORM. Our market has been catching its breath. We are coming out of the trough as we speak.


ALWAYS BEWARE when the media speaks of doom and gloom or streets paved of GOLD. When you see the extreme in the media do the opposite.
For Example: The media is writing and speaking of how bad real-estate is, this should be your first indicator to buy real-estate/ land. When the media was speaking about how great real-estate was you should have been taking profits!!


Richard G Johnson
Evolve Realty/ Rich Development
C: 480-600-5900

Posted by: Richard Johnson | Oct 24, 2006 10:25:58 AM

Industry visionary Stefan Swanepoel and author of the Trends Report has found that there are many things that need to change in order for the market to pick up where it left off. For instance, there are too many new agents and brokers and too many new mortgage brokers. With a declining housing market do you think the number of agents will also go down?

Posted by: Lucy | Feb 15, 2007 8:31:32 PM

Hi Lucy - I definitely think the # of agents will decrease somewhat. There are those who only got into real estate because they thought it was easy money, and when they realize it's hard work sometimes for no money, they move on. I imagine the mortgage industry is similar. I've heard many brokers/agents comment on how many new agents there are. The flood of new agents hurts the industry as a whole since many of them are inexperienced, and the incompetent ones give real estate professionals in general a bad name. More agents may be good for the consumer in the sense that increased competition can drive prices down. But a lower price for a less competent real estate agent who provides a lower level of service is not a bargain where I come from!

Posted by: Shannon Hubbard | Feb 16, 2007 2:57:01 PM

So does anyone have data regarding seller or builder concessions? Has recent market activity resulted in a significantly larger percentage of sales where a seller or builder concession was made?

Posted by: Brian Serwe | Feb 22, 2007 7:21:14 AM

Hi Brian - while I don't have any data regarding builder or seller concessions, I can say that such concessions are definitely being made! I would absolutely say that a larger percentage of recent sales involve builder or seller concessions than say a year or two ago. Builders are offering everything from discounts & money towards closing costs for using their financing, to making the first year of HOA or mortgage payments for the buyer. They're also offering higher commissions and bonuses to real estate agents in an effort to attract buyers.

Sellers of re-sale homes have taken note of builder marketing strategies and are also offering concessions. I've seen sellers offering everything from money towards closing costs, to $1000 per month cash back for the first 12 months, to swimming pools, vacations and new cars! I've also seen many sellers offering higher than the usual 3% commission to the buyer's agent.

As I said above, I don't have any specific data on builder or seller concessions. While they're certainly not uncommon in today's Arizona real estate market, I'd say they're not as prevalent as they were about 6 months ago. Sellers are definitely negotiating now, but it seems they don't have to offer as much to get the sale as they did a few months back. The real estate agent commissions offered by builders are also coming down significantly. For example, six months ago it was very common to see builders offering the buyer's agent 6-10% commissions. The highest I've seen in the past couple months is 7%, and most builders are paying 3-5%. That tells me that it's getting easier for them to sell their properties. I would also expect to see less and less concessions being made by both sellers and builders in the months to come. My phone has been ringing off the hook the past few weeks, and I think the market will continue to pick up in the next few months.

Posted by: Shannon Hubbard | Feb 23, 2007 8:27:09 AM

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