The Market Is Shifting, Not Crashing
Although the market is shifting, that doesn't mean we are headed for a crash. Sellers must understand the new realities and make prudent adjustments instead of panicking or abandoning their plans.
While the desire to be as proactive as possible is understandable, it’s concerning to see some sellers return to tactics that were historically reserved for markets where homes typically stay on the market for months, not just a few short weeks.
A bit of history might be helpful. (Statistics from Pasadena, California provided by TrendGraphix.com.)
In the second quarter of 2009, the average days-on-market (DOM) for single family homes in Pasadena, California was 90 days. During this period, homes sold for, on average, 94 percent of their list price. In the second quarter of 2022, the average DOM in Pasadena was just 16 days and homes sold for, on average, 109 percent of their list price.
While the data for Pasadena, California might not match other cities across the nation, the overall trends are likely similar. When any trend continues in one direction for a prolonged period of time, people begin assuming it will continue forever. In this case, the continued steady decline in DOM numbers has led sellers to expect that the numbers will continue to drop.
In the real world, however, DOM numbers actually fluctuate up and down and, if we look back at history, we will see that everything that comes down eventually goes back up and vice versa. If nothing else, the current increase in interest rates should serve as an example of this reality.
As a result of the rise in interest rates, increased DOM, less traffic at open houses, and fewer offers, many sellers are hitting the panic button and lowering prices along with other incentives.
The truth is, even with increased interest rates and an overall slowdown in the market, we are continuing to see strong offers, many of which are still over asking price. Returning to the previous example, the average DOM in Pasadena for May 2022 was 14 and June rose to just 18 days; that is a mere four days.
It’s understandable that listing agents want to do everything in their power to close a sale in a decent amount of time. However, even with the current slowdown, homes that are properly prepared and priced correctly are typically selling within 14 days without any giveaways or gimmicks.
It’s time for listing agents to educate their sellers in understanding the new realities instead of blindly reacting and giving away the farm in the process. Here are my five recommendations:
1. Help sellers understand the sky is not falling.
We are not headed for a crash, we are not going to see collapsing prices, and we are not going to see interest rates hike over 10 percent in the immediate future. In many ways, the economy is still strong, we are still facing an inventory shortage, and there are still plenty of buyers out there with the ability to buy despite higher interest rates. It will just take a bit longer.
2. Educate in the new reality.
As listing agents, we should explain to our sellers that we operate with integrity and will not “understate” the new market realities just to get a listing. We should clarify that they may see multiple offers, but will not see 10, 15, or even 20 offers as has become common over the last couple of years. Furthermore, we should counsel our sellers not to expect offers within the first few days and not to expect offers way over asking with no contingencies. Lastly, it’s important to explain that these shifts are really just a return to a more normal market.
3. Property preparation is still critical.
In an overheated seller’s market, it is not uncommon to see homes hit the market with little preparation. As we move towards a more balanced market, buyers are going to have more choices and it will be imperative for sellers to present their home as best they can. Before your home goes on the market, pay close attention to these five areas:
Curb Appeal: Clean and prune overgrown planters, repair and fertilize the lawn, and add fresh mulch and some colorful bedding plants.
Declutter and depersonalize your living areas.
Deep Cleaning: Thoroughly clean top to bottom, including carpet and inside closets; and make sure those windows sparkle.
Paint: If your paint is in poor condition, a fresh coat will make a huge difference and will be well worth the cost. At a bare minimum, clean scuffs, repair dents, and put a fresh coat of paint on the front door.
Complete Minor Repairs: Repair loose handles and sticking doors and drawers, and replace missing light bulbs.
Buyers can afford to get picky, and nicer homes will sell first and for more money.
4. Price is the most critical component.
Rather than provide huge closing cost credits or other financial incentives, simply get the price dialed in correctly from the beginning. Sellers tend to forget that buyers prefer a lower price over incentives because they end up paying more property taxes on a higher-priced home.
Sellers need to understand that homes must always be priced ahead of the market. For example, if the market is going down, then their price must be lower than previous sales.
5. Use incentives only if other methods fail.
If normal tactics fail after a reasonable period of time, then it is OK to introduce incentives. But, if you do so too soon, you will give away your client’s money unnecessarily. Suggestions include price reductions, credits for closing costs, agreeing to some repair requests, or buying down the buyer’s interest rate.
At the end of the day, even with the shift in the market, the basics still prevail: agents must work with sellers to ensure the property sparkles and to dial in a realistic list price from the start. We know from history that those two things are very effective.