Pricing is an Art

I've been writing a lot about pricing--signs of a changing market, appraisal issues, the importance of the first two weeks, and other aspects--but I still feel that there is more to say about this critical piece of the real estate market.  It would be nice if there were a formula to apply, that would spit out the correct number every time.  However, the pricing of property is more an art than a science, for a plethora of reasons.

First of all, nothing about real estate is static.  Things are constantly changing, from stock prices and political fortunes (which do affect real estate) to tastes and preferences among buyers.  In the same way that a video can go viral, a trend can suddenly take off (or end), leaving in its wake all kinds of now outdated homes. Even towns and neighborhoods become trendy or not, and make pricing differences apparent from place to place. In the realm of changes, an election can cast a big shadow, be it local or national, with people waiting for resolution before making decisions.

Interest rates deserve their own paragraph, since they play such a big role in what buyers can afford.  They have ranged from low single digits to almost 20% during the course of the last thirty years or so.  Many buyers, probably most buyers, look at the monthly payments more than the actual price of the home, since that's the true measure of what they can afford.  Strangely, though, more buyers pull the trigger on a purchase as interest rates are rising, than when they are falling, because the rise creates a sense of urgency. 

Demographics also factor into the equation.  Millennials have lagged behind their parents and grandparents in the buying of homes, but they are out in full force now.  They waited longer to get married, longer to have kids, and they owe more in student debt, so it has taken them more time to get around to buying property.  For a long time, we believed that they never would, but that seems to have changed. That increases demand, which affects prices.

Values in other markets come into play when we consider relocating transferees.  Those coming into our market may be coming from places with hotter markets, or higher prices, which inevitably influences what they will pay.  This is especially true if they sold a house in a booming economy somewhere else, and for tax reasons or otherwise, they want to reinvest that same amount here.  It's a good example of the old saying:  "The property is worth what you are willing to pay for it". 

Conversely, people relocating within our region may be faced with a decline in the value of their current properties, and may not be able to spend on a new home what they thought they could.  That puts pricing pressure on in the opposite direction.  In addition, the average person spends double the time between purchases (eight years) than he/she used to do, so that dampens demand as well.

Finally, when is the spring market?  As the world changes, and more households are not tied to a school year move, and more families spend time apart before rejoining forces in a new location after a job change, the traditional spring selling season is less certain.  Weather definitely plays a role, whether it be snow lasting into the spring, or even a rainy month (think this month!).  Often the "spring market" lasts longer, and in 2016, we saw that occurring, with the market staying strong into early August. 

All of this together gives you an idea of what goes into a pricing recommendation.  In the past few weeks, we've seen prices lowered at the last minute before listing, and we've seen others raised.  We've seen many more price reductions within the first month on the market than we used to see, and we've seen some homes fly off the market and others not even get shown. We may bring in a high offer, only to have the home not appraise, which in many price ranges effectively means that it can't sell at that price.  Sometimes we are sure we are correct, and sometimes we have our fingers crossed.  Connecticut is harder to predict than other places, since we are in our own "bad economy" bubble, but other markets can face these uncertainties as well.  Much as a doctor may not know which procedure will be best for an individual patient, or a financial advisor can find his or her stock picks having unexpected outcomes, professionals of all stripes have to offer advice with imperfect knowledge.  So we go forward, together with our clients, combining hope and trepidation, into an evolving market in 2017. 

We're All Busy!

We are smack dab in the middle of our slow season, but it isn't slow!  Although there have been some epic lows in the temperature department, and some messy storms, it isn't shaping up to be the winter that the last ones were. People are looking at real estate, and they are looking both on line and in person.

Weather may be part of it, but I also have thought for some time that we just aren't as seasonally tied as we used to be.  Maybe it's because Connecticut is old on average, and doesn't care as much about the school calendar.  Maybe it's because taxes drive real estate purchases as much as anything does, and that means end of year for lots of people.  Maybe there just isn't any reason at all. Whatever the answer, we can't tell what kind of winter we'll have until we're in the thick of it. 

It's also true that it may not matter that much, because we say that the market is "late" or "early", if the listings and sales don't mostly come in the spring.  That's really just another way of saying that the market for real estate is not as predictable as it used to be.  What that means for us now?  We have buyers and tenants out there, so sellers should decide that spring has sprung, no matter the temperature, and list as soon as possible!

Lack of Inventory

Wouldn't it be ironic if the real estate recovery ended up being hampered more by lack of listings, as opposed to too many listings?  When we think of down markets, we think of lots of unsold houses, because people aren't buying.  If you talk to real estate professionals around the country now, they will likely tell you that people aren't buying because they can't find anything they want to buy.


How can this be true?  Shouldn't there be plenty of homes, especially here in Connecticut, where the recovery has been much less robust, and, indeed, where prices are still declining?  Actually, it makes sense, if you think about supply and demand.  The supply here is not keeping up with demand, because owners don't want to list if they can't recover their costs, or get the profit they thought they would.  They know that prices are declining still, and that the average home is worth 20% below what it was worth in 2006.  That, in many cases, deters them from trying to sell.  What is on the market has, in many cases, been there for some time, and isn't being shown.  Sometimes those properties are overpriced, and sometimes they have location, condition, or other issues.  Buyers aren't going to "overpay", especially if they need a mortgage, so those homes just sit.


What we have seen here, however, is that buyers will pay at or above asking, if they see something good, because so many people are bidding on what is available.  Therefore, new listings often have multiple offers on them, because good properties are rare, so paying more is not overpaying, it's an increase in the market rate.  And there's the law of supply and demand, played out for you in real estate.

Urgent Message to Listors and Potential Listors

Last month, I blogged about what I had learned from reading the new book Zillow Talk.  One of my primary takeaways from the book, which used statistics derived from the millions of real estate listings on Zillow to draw conclusions about best practices, was that there is a best and worst time to list.  The worst time--sometime in mid-December--seems obvious.  The best time, however, was a surprise:  30 days after most listings come on the market in the spring.  Why?  Because when buyers get serious, which takes them a few weeks after the spring market begins to heat up, they look for the newest listings, which are not the ones already on, but the new ones just entering. Those, therefore, are homes that have come onto the market just as people have begun to narrow and intensify their searches. 


Why did I mark this post urgent?  Because that sweet spot for listing--at least to get the most money in the fastest time, statistically--is now!  The authors boiled it down to "between filling out your bracket sheets for March Madness, and when the green jacket is slipped on at Augusta".  For those of you who don't follow golf, the green jacket-winning golfer at Augusta is crowned this coming Sunday. 


Now, I realize that there are always exceptions to every rule.  People who decorate well, and keep their homes neat all year, can do very well in December, when very little is on the market, and those buyers that are out there are very motivated.  Any given home can do well at any particular time, especially if it is well-priced, and in a good location.  However, if you want to play the odds, now is your time.  So beat the green jacket, and list this week!

Absorption Rates

 

 

Not Enough to Sell

This week, we've spent some time at every office meeting, going over our list of active listings.  It looks like a list done in a poor market, in the dead of winter.  There aren't enough new listings, not enough listings in towns and neighborhoods where we are getting calls, not enough listings in certain price ranges, and way too many listings with a "story" of some kind attached to them.  The stories can range from something badly wrong with the house, a bad location, a short sale with bank approval needed and seemingly withheld for no reason, or the most popular--overpriced.  We have taken listings all over the place, as agents tend to do when listings are thin on the ground, and we've let sellers dictate prices. 

Now we are entering the traditional time for the spring market, when typical buyers look for homes on which they can go into contract in the spring, and move into in the summer.  We simply don't have the inventory to show all the buyers stacked up (waiting for the snow to stop) what they want to see.  Some sellers are paralyzed by weather, and this is somewhere we can all empathize. This is particularly true of older owners, who may be fearful of trying to clear their walkways and driveways for showings.  It also tends to be true of owners who are out of town, as it can be harder, and more expensive, for them to keep pathways clear.  In some cases, people may feel that their houses won't show as well with muddy floors, or ice dams (true).  It may be hard to get necessary repairs made in cold and snowy weather. 

All of this needs to be weighed against the need to give buyers what they want, when they want it.  Suppose you were selling Christmas candy, but thought that your product would look or taste more attractive in January?  Or you grew flowers for Valentine's Day, but got them ready in March?  It behooves sellers to get their homes prepared for sale right away, and to anticipate that all kinds of issues can slow that process down.  It's not so easy to call a repair or landscaping service on the first nice day, and go right to the top of the list.  Even if you have to go back and do some cleanup work in the springtime, it's still better to get the bulk of the work done now.  Also, it's important to remember that your chances of selling are greater when the supply of available properties is smaller. We have more than forty relocation buyers from other places, just waiting for homes they can view. Act now!  Get your homes ready, and get a jump on the spring market!  Buyers are waiting!