A few weeks ago I was talking with a Financial Advisor. The conversation moved around to a discussion of timing the market. If you have ever talked with a Financial Advisor, you can probably guess what I was told about timing the stock market…It cannot be done. There is plenty of data that supports that position. I started think about the real estate market and whether or not anyone can time the perfect time to buy or sell.
I’ve read a fair number of real estate books and listened to my share of experts on the subject and the answer I come away with is NO, you cannot time the real estate market to produce the best result for either a buyer or a seller. There are plenty of data that support my conclusion. But we don’t have to pour through years of facts to realize that markets are volitile and not easy to predict, even for the so called experts. Like it or not real estate is a market like stocks, bonds or futures.
Sellers must recognize the ebb and flow of the market determines the value of their home. Location and condition play a slight role in the overall, but what a seller paid for the house when they purchased it does not. As much as you might be attached to your home now, it is only a house on the market to the buyer.
Speaking of buyers, so many are trying to time the market to get the best price. But is that is not all that goes into a house search. Once a buyer is settled on the size house they need, location and condition are important. Do you consider the importance of the mortgage interest rates if you are borrowing money to buy? You should. But not necessarily for the reason you think. How much influence does your interest rate have on your buying power? If listing prices go down, but interest rates go up, where does that leave you?
Here is a chart that might help you see how interest rates and selling prices can influence your buying decision.
Put 20% down on a 30-year Fixed Rate
|SCENARIO 1||SCENARIO 2Home Prices decrease by 5.0% and Interest Rates increase by 0.5%||SCENARIO 3Home Prices decrease by 10.0% and Interest Rates increase by 1.0%|
The purchase price dropped and the interest rates went up and what was the net result to your monthly payment? The selling price dropped by 10% and the interest rate increased 1% resulting in a monthly payment of principle and interest to go up by aver $20! Did it make sense for you to wait?
Is that a question you’ve asked your real estate agent? It seems this question is being asked more and more these days. While there are many factors that go into the answer to that question, one reason that is the most frequent reason is the listing price. How is the listing price of your home so important in getting your home sold within 90 days?
Your goal is to sell your home for the best price in the shortest time. That is also the goal of your real estate agent since your agent only gets paid when your home sells. That poses a very delicate balancing act. What is the best price to get your home sold in 90 days? What relationship does that price have with what you paid for your home, or more importantly, what you owe on your mortgage? As a homeowner, these are important factors to you, but a potential buyer is not interested in what you paid for your house and what you owe on your house! To a potential buyer the only thing that is relevent is what is your house worth in this market. Isn’t that what was important to you when you bought your house?
When your home is listed, the first two weeks tell the tale of list price. If your house is shown often during that time you are probably in the right price range of comparable homes. If you haven’t received an offer, your list price could be high. If your house has only a few showings in the first two weeks that is a clear indicator that you need to take immediate pricing action to get in the range price of comparable homes in the area. If you do not act immediately another reason comes into play. What’s that?
If you’ve listed your house at a price that is above the selling price of houses that are comparable to yours and you aren’t getting showings within the first two weeks of listing your house, your house will be ‘old’ in the minds of buyers. Even worst, buyers might feel that it would be difficult to negotiate a deal on your house because the listing price is above the market. That puts you in a difficult position. By the time you lower the price to where the market was, you’ll find that the market has changed. You end up chasing the market and your house has lost its luster. Some agents may tell you that the price reduction will cause your house to show up on the MLS hot sheet notifying all local agents of the price reduction. But remember, these agents saw the first listing with a price that was above market. And there are newer listings that their clients might want to see!
Avoid the hassle! Selling your house is a business transaction and there is little room for emotion. What ever your reason for selling your house your goal is to sell it at the best price (fair market value) in the shortest time possible! While you cannot do this with price alone, one thing is sure: If you price above the market you will not sell your house in the shortest time possible.
If you have questions on this, or other real estate topics, call us.