Careful Pricing
Buyers now have the upper hand when negotiating in today’s market, which means sellers must painstakingly arrive at the asking price to be successful. To find success, sellers need to price their home according to its Fair Market Value based upon its location, condition, upgrades, amenities, age, décor, and overall appeal.
For nearly two years sellers got away with arbitrarily pricing a home where nearly everything sold instantly, with multiple offers, and closed sales prices way above their asking price. It was an auction-like atmosphere. There were throngs of buyers that viewed nearly everything that hit the market. Homes were listed FOR-SALE and, in some cases, buyers were only allowed to see a home during a three-hour window on a Saturday, and then all offers had to be submitted by the following Tuesday at 5 PM. After sifting through 10, 20, 30, or more offers, only one lucky buyer won. All the other buyers had to go back to the drawing board
Pricing a home was so random, that many homeowners wanted even more than the price suggested by the real estate professional, leaving the professional scratching their head in disbelief that it would ever to sell. Often, after placing the home on the market, they were still able to procure multiple offers and ultimately sale above the asking price. The housing market was out of control and values surged higher. Not only did the record low mortgage rate accelerate demand, but the inventory also plunged throughout the pandemic. The mismatch between supply and demand paved the way to a historic rise in home values.
Those days are gone. The Federal Reserve has slammed on the brakes and done everything in their power to “reset” the housing market, one of the main economic drivers of the economy. As a result, mortgage rates have skyrocketed from 3.25% at the start of the year to 7.12% today, according to Mortgage News Daily, more than doubling, another historic rise. Affordability has taken an overwhelming hit and demand is now down by 42% compared to last year. With muted demand, the active inventory has ballooned and is up by 35% year-over-year. Consequently, the Expected Market Time, the amount of time from hammering in the FOR-SALE sign to opening escrow, has grown from a record low of 30-days in March, an insane pace, to 90 days today. The Expected Market Time had eased from 79 days in July to 74 days to start September due to rates receding during the month of August, but that has all changed since.
The Federal Reserve made it perfectly clear coming out of the Jackson Hole, Wyoming economic conference that they were going to be extremely aggressive in raising the Federal Funds Short Term Rate further and that they were not going to change their stance through 2023. Getting inflation under control was now their main objective. Mortgage rates responded and they have climbed from 5.99% on August 31st to over 7%. The Expected Market Time has grown unabated from 74 days on September 1st to 90 days today, rising by more than two weeks and at its highest level since the end of April 2020, during the initial COVID lockdown.
From February of 2021 through May of this year, Los Angeles County housing was moving at an insane pace. Seller got away with overpricing and the market required very little forethought when it came to price. Homes that backed to a busy street, or had an inferior location, still sold instantly. Homes that needed work or had deferred maintenance were snapped up nearly as fast as homes in great condition. There simply was nothing available to purchase and buyers jumped at nearly every home that came on the market.
Today, sellers no longer get away with stretching the asking price. Those days are gone. In fact, they must be extremely careful in arriving at a home’s Fair Market Value, or they will not find success. It is not as easy as pricing it right at the most recent comparable sale either. Rarely are two homes completely identical. There is a lot more that goes into the value of a home: location, condition, upgrades, amenities, age, décor, and overall appeal.
Today’s buyer wants a home to look like a model, turnkey. When it falls short, buyers will subtract from value. If a home needs carpet, the walls are scuffed and dirty, the kitchen is outdated, the yard needs work, the patio is cracked, the light fixtures are old, the bathrooms are dated, and there is plenty of deferred maintenance, buyers will subtract heavily from value. Many buyers will just skip these homes altogether and wait for a home to come along that is already done and ready for immediate occupancy.
ATTENTION SELLERS: To find success, sellers must price their homes according to its Fair Market Value. Pricing a home accurately is more important today than any other year since the end of the Great Recession. Negotiations are now leaning in favor of buyers, prices are slowly falling, and with affordability taking a drastic hit, buyers are unwilling to stretch, and they will do their due diligence in approaching any offer to purchase. Sellers also must be patient. The housing market is no longer instantaneous. The closer a home looks to a model, the faster it will sell. Pricing a home at the last comparable sale, yet it needs a lot of work, will simply not sell in today’s market. As a result, sellers have a choice. They can either invest in their home and update it prior to placing it on the market, or they can adjust the price to reflect the work that needs to be done. Buyers will also subtract for the hassle to do it themselves.
With the market leaning in the buyers favor and values slowly falling, careful pricing is crucial.
September Luxury Sales Report
