Appreciation for Appreciation

For months now I have been beating the drums and sending the message to sellers and agents alike that when pricing your home, you must have appreciation for appreciation.

What I mean by that is illustrated in the graph below courtesy of The Cromford Report. There is a lot of information on the graph, so let’s try to simplify it a bit.

First, the good news. We see that despite some folks fears, we are not in a “bubble”. In 2006 the average sales prices (here shown as price per square foot) were towering over actual home value, as shown on the “Annual Appreciation” shaded area of the graph. Basically, we were all clamoring for a home, paying whatever it took to get it, way over the homes value…and predatory lenders were more than willing to lock us into contracts for homes that we couldn’t afford driving pricing up, up, up!

Skip ahead on the graph to the last year or so. Home values continued to increase at the annual 2-3% appreciation, sale prices seemed to lag behind until recently when we jumped above the homes value with higher and higher asking prices. The result? Coupled with low inventory, sales began to slow.

Are the slowing sales and available inventory cause for concern? In my opinion, no.

There are a couple of reasons for the slow down. For example, many people bought their homes at the bottom of the market. Low price, low interest rates, they got the home they wanted, they have equity and no desire to sell it. As a result, listing inventory is low.

However, the biggest reason for the slow down in sales, as I see it, is illustrated in the graph. Asking prices are growing faster than home values, or appreciation. Buyers that have memories of 2006-08 and the bubble/crash are very savvy, and smart to not chase the pricing up. They have a value threshold of “the actual value”, and that is what they are willing to pay.

Sellers agents are, in many cases, giving bad advice to their sellers telling them “Low inventory means Sellers Market! We can push the asking price up because there isn’t much competition.” In the past that may have been the case, it’s supply and demand, right? In this situation, with the experience many of us had in 2006-08 and no desire to repeat that, it’s about fair value.

Today’s buyers want a fair price.

Recently we have seen an increase in inventory for the “Spring selling season” (see the graph courtesy of ARMLS below). This makes your initial asking price even more vital. Over priced homes will sit on the market.

There is something to be said for a “Stale Listing”. The longer it sits, the more buyers begin to wonder if there is something wrong with it and seem to put it on the bottom of the “Gotta see it” list.

I have seen quite a few “Price Reduced” signs as of late, some as much as $20,000! I think we can agree that a $20,000 price drop is a clear sign that the initial asking price was a bit aggressive. 

Bad advise from the listing agent, or are they just telling the seller what they want to hear in order to lock them into the listing contract? Either way, I bet those sellers wish they would have shopped around for their representation. That kind of disappointment is avoidable and should never happen.

 

The Bottom Line:

Sellers.  Always shop around for your agent. Don’t get trapped in a situation where you are being told what they think you “want to hear” rather than the actual facts and market situations in your neighborhood.

Personally, I think it’s highly unethical to give the seller false hopes for an unreachable sale price in order to lock them into a listing contract and months of “price drops”.

If you have questions about your property value, or questions about what you should be asking an agent prior to signing a listing contract, call me. I am happy to advise you. Even if you choose someone else to list your home, I will feel better that you went into it knowing you have an honest agent, and an honest valuation of your home.

 

Buyers.  Your agent should be advising you on the fair sale prices of the home based on comparable sales in the neighborhood.

While everyone is looking for the best deal, you should have an initial mindset of “What is the best house for me?”, followed closely by “Is this a fair price”. Not too high, but it will likely also not be too low either.

In the end you should feel as if you, and the seller walked away feeling as if the transaction was a fair one, and everyone is happy.

Are you ready to buy or sell you home? I have an awesome team of professionals in our corner to ensure a smooth transaction.

If you’re not ready yet, we can help you set a plan to get there with free advice and guidance.

I would be honored to earn your trust, your business, and your referrals. Give me a call, let’s get started today! (602) 818-6065 or Kevin@GiantAgent.com

Posted on February 26, 2019 at 6:34 pm
Kevin Jacobs | Category: Affordability, First Time Buyer, Market Information | Tagged , , , , , , , , , , , , , , , , , , , , , , , , ,

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