Journalists will be journalists. Their job is to attract eyes to the story and keep subscribers coming back for more.
Even journalists in business publications, like the well-regarded Inman News. That paper is the go-to for many real estate brokerages. Even real estate agents need to keep their eyes open and read between the lines to figure out what to tell their clients about the changes in the real estate market.
The subject line of the email from Inman News read:
“In the short term, home prices will fall. But then what, economists ask”
I say, in my head, “OK, I need to open that. What should I be telling our clients about the market?”
Then I open the email, pass the advertisements for apps and services that will make me a top agent, and get to the first substantial article. Its title is quite different from the email subject line. It reads:
“Even in a topsy-turvy market, some agents are still drawing tons of bids”
Before the paywall cut off, it tells the opposite story to the email subject line. It reads,
“Even as home prices and rates hit record highs, it’s still possible to attract multiple offers when a property stands out or it’s priced to sell. ‘We priced it right — right away,’ one agent told Inman.” [source]
For the audience of agents, these two headlines are telling agents that falling prices (bad for seller’s agents) are ahead in the future, but there is a solution (after the paywall).
What does “priced right” mean?
From context, “priced right” means priced low enough to start a bidding war. The goal of the listing agents is to identify a price where several parties will be willing to purchase the house for that price or more, hope for competition, then choose the highest or most secure buyer.
“Based on the Realtors Confidence Index data released [Oct. 20], 28% of homes sold above list price and the typical seller received 2.5 offers for their home. Despite the difficult affordability conditions, some buyers are still active in this low inventory market, and are willing to pay more for the home they desire.” [source]
Look at this part of the statement: “Some buyers are still active in this low inventory market, and are willing to pay more for the home they desire.” My question is always more than what? The answer, for the past several years has been more than an artificially low asking price.
The art of setting a price
Professional listing agents do a comparative market analysis on a property they intend to sell. They look at the speed of the market (how many days until offer for properties like this) both generally and specific to the type of property and its location. They know what it should sell for. Then they propose strategies to the sellers.
Setting an asking price lower than the property’s true value can backfire:
- Prospective buyers aren’t looking at properties in that lower range: Buyers set a search price range where suitable properties can be found. Once a buyer finds that all the suitable condos under $525,000 are too small, too shabby, or in the wrong location, the buyers will stop looking below $525,000. If a listing agent lists a suitable property for that buyer, asking $499,000 when it is worth $560,000, this buyer may miss it. Instead, other buyers with a $525,000 or $550,000 spending limit may be attracted to the open house.
- What’s wrong with it? Buyers learn the market as they go along. If that same buyer found that everything that is listed below $525,000 is not good enough, they have also learned that anything good enough will sell for $575,000 to $600,000. If they see the listing for $499,000, even with great pictures and all the amenities, they will look for flaws and may choose not to look at it.
- If there is no bidding war, how can a listing agent raise the price? This happens. There is even a term for it, “price improvement.” The euphemism means a lowered price, which improves the buyer’s options; I wonder how many sellers resent that term.
What are we seeing?
In the middle of October, our agents are seeing signs that the market is more buyer-favoring.
Some properties that stay on the market for more than a month. These are not all hard-to-sell places. For some of these, the problem is the price (too high). For others, it is the property.
When the real estate market is overheated, as it was in 2021 and early in 2022, buyers made compromises on size, location, or condition because they felt they had to. That urgency has diminished some. When the real estate market begins to turn, buyers get more discerning. They are less willing to compromise on their “want” list items. This leaves some properties with less demand. Because of this, we are seeing these things, which were rare since about 2018:
- Price improvements (reductions)
- Broker incentives (bonuses to the buyer’s agent, if the property closes by a certain date or for a certain price or more)
- Properties going off the market, unsold.
We also are seeing bidding wars. This is a more buyer-favoring market, but it is not a buyer-favoring market, yet. Not by a long shot. There are still bidding wars on properties that are good for large numbers of buyers. These are the properties that had 30, or so, offers last spring; now they have 12, or so. It seems crazy, but it isn’t. There is still a housing shortage.
Properties you should not go into a bidding war on:
- Too small: Any property that could be too small for you in the next 5-8 years. Think ahead. The most common thing that will change you housing needs are a change in your family constellation. If you are single, might you become partnered?
- Location issue: These never go away. Are you willing to compromise and be on a busy street, or be so remote that you must drive to anything you need?