Caution: High List Price Ahead


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The Sellers’ Market                

Currently in the Seattle area we’re in the midst of a bonafide “sellers’ market”. A seller’s market is typically defined as a shortage of available homes to buy, compared to the available buyers in the market. It typically shows levels below an inventory of six months worth of available listings. In other words, most listings are moving in less than six months, start to finish. Last year, the number went as low as 2% in March and didn’t get that much better for buyers in December when it raced all the way up to a meek 3.7%. In March, a study put Seattle as the #5 ranked seller’s market in the US. That can be rough for a buyer competing for a home against other offers.

That said, just because a price is set on a listing doesn’t mean it’s a price worth agreeing to. There are a couple of reasons for a home initially listing at a price that might not be a good representation of the market. The Seller might be motivated by their original purchase price, especially if they purchased between 2004 and 2008. They might be hoping to have more equity built up than is realistic based on location, condition and the comparable properties around them that have been, or are, on the market. Another possibility is that the shortage of comparable properties in a Seller’s Market prompts the listing agent and seller to decide to “test the market” and let you, the market, decide what the property will bear.

Buyer Caution

Here’s where a dose of caution is the best medicine for a pricing headache. We likely won’t see the same kind of bubble in real estate we saw in the early 2000’s without a little volatility to go along with it going forward. While most prices have just about come back from 2007-2008 levels, not all have and paying that 2007 premium price now can be dangerous, especially if there’s a chance you may want or need to sell in the coming two to five years. The goal is to build equity in a home, not tread water. That means offers must be thoughtful, backed by data (comparable properties, interest rate directions, etc.) and fair. If you pay too much now, you may be ecstatic when you move into your new awesome home, but if and when you need to sell, you could wind up with zero equity or worse – a Short Sale. In a multiple offer situation, make sure you know the real value and base your offer on that. If another offer shoots you down because it’s considerably higher, be prepared to let them deal with the possible consequences and wait for the one that you know will make you ecstatic at move-in – and keep you financially healthy for the long term. A good broker will help a lot by negotiating on your behalf with hard data in comparables to justify your offer and help the Seller come to terms with reality if the house you want is simply overpriced.

The Low Appraisal

Also know that, these days, there is a little more “protection” against overpaying for a home. Federal guidelines since 2008 have made it very tough for an appraiser to just go along with the market and simply appraise at a pending value based on the hot activity in an area. During the bubble, there was much more acceptance of appraisal values based on what the market was about to do, or what current non-sold pricing was. Now, Fannie Mae guidelines put more restrictions on an appraiser regarding speculation and require more data based on previously sold properties. That means an appraiser used to look slightly forward, but now we are seeing them tend to look more backwards in time, slowing that rampant price growth a little more. What that means to a buyer is that you also need to be prepared for the possibility that you made a very generous offer on the home that you though was still a good value, but the appraiser comes in with a value that is even lower. Your mortgage firm isn’t going to like that one bit and there will be some decisions that need to be made between Seller and Buyer as to who is going to come up with the difference between the pending sale price and the appraised price. The Buyer has the option of just putting more money down so that the overall mortgage stays within the percentage of allowed financed dollars. The Seller can drop the sale price to meet the appraised price, or you can meet somewhere in the middle. This is an area where, unless you have a wealth of experience as a buyer, you absolutely need very good representation to help you negotiate with the Seller and come to a decision on what your course and outcome will be.

Conservative Patience

It takes patience, analysis and grit, but a Seller’s market doesn’t mean you must necessarily overpay for your home. It just means you need to be cautious. Some might worry I’m giving away listing agent secrets. I love to list homes and can tell you that a sound listing price is way better than aiming high and crossing fingers. For the Seller, selling a home purchased between especially ’06-’08 can be tough and will require listening hard to the broker, even if the message is not what you want to here. Listing too high ultimately leaves the home on the market too long and puts the Seller at risk of a low appraisal anyway. That is admittedly a tough spot to be in, but sometimes life happens and when you have to sell, you have to sell. Like many great brokers out there, I say aim for the Win-Win – cautiously. A Seller’s market is harder for a buyer, but people are still buying homes every day, so be patient and conservative – and have some fun!  As challenging as a seller’s market may seem, this is not the time to sit out. Interest rates just unexpectedly fell back to near all-time lows and it’s a great time to buy! With low rates and increasing values, if you were waiting for confirmation of the perfect scenario, this is it. Get out there and get in your home!


Todd Crooks4029 Sold

Real Estate Broker

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3 thoughts on “Caution: High List Price Ahead

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