IGNORE Active Listings
Too many sellers fall into the trap of pricing their homes based upon
active listings, the wrong approach with so many overpriced homes.
Pricing Based Upon Active Listings: Sellers pay way too much attention to what other properties are listed at, often a recipe for failure.
2014 has been the year of the overpriced listing. Price reductions are the new norm. 10% of all active listings reduce their asking prices every week, a trend that has not changed throughout the year. Ask any REALTOR® to search on the Multiple Listing Service and pull up the “1 Line” report and you will see evidence of all of the reductions. Punctuating the list of listed homes are a series of small red arrows pointing down adjacent to their asking prices, indicating that the home has had at least one price reduction. More than half of the homes have the little red arrow prominently displayed. These marks demonstrate that most sellers are pricing their homes out of bounds, outside of their Fair Market Values.
There are a myriad of contributing factors to so many sellers arriving at these unrealistic, overzealous asking prices: focusing on the desire to net a certain dollar amount; testing the market; leaving negotiating room; expecting massive appreciation similar to 2012 and 2013. Buyers can care less what a seller needs to net from the sale of their home, so sellers unsuccessfully sit on the market until they reduce. Testing the market is a Disneyland Fast Pass to the front of the line to sitting on the market with no success. Adding tens of thousands of dollars to the Fair Market Value to leave room to negotiate is one of the quickest routes to not accomplishing the goal in selling. And, properties are no longer rapidly appreciation like the past couple of years; as a result, pricing in anticipation of rising values is another opportunity to sit until a seller reduces.
There is another major contributing factor to how so many sellers sit on the market overpriced, pricing their homes based upon active listings. When somebody places their home on the market, neighbors eagerly pull a property brochure from the newly stuffed brochure box and quickly search for the list price. They take the flyer home to their spouse as evidence of their own home’s value. What they fail to consider is that it is simply an asking price. In 2014, most asking prices were initially overpriced; yet, neighbors mentally saved the flyers as proof that their home value was continuing to increase. Anywhere from three to six weeks, when a home reduced its asking price, none of the neighbors received an update. It may have taken multiple reductions before a home ultimately achieves success and sold. When neighbors then listed their homes after excitedly viewing the SOLD sign, their expectations of values were all out of whack.
Today, many overpriced homes never sale. Now that Spring and Summer Markets are behind us, sellers need to choose between becoming realistic, reducing their asking prices, or throwing in the towel, pulling their homes off of the market altogether in anticipation of the slower Autumn and Holiday Markets. When homes are pulled off the market, a memo does not go out to the neighbors explaining that they were unsuccessful in their attempt to sale their home. Neighbors still mistakenly remember the initial asking price from the flyer that they pulled months ago, a price that resulted in sitting on the market without success.
In meeting with REALTORS® to list their homes, sellers go over all neighborhood active listings and recent pending and closed sales. Many often ignore the reality of pending and closed sales and choose to place way too much weight on active listings. It is quite common today where an entire neighborhood is filled with overpriced listed homes that are just sitting. Even pricing below the lowest priced home may be higher than the pending and closed sales. It too is overpriced and gets to sit on the market like all of the rest of the neighborhood homes until somebody finally decides to take the realistic approach and price based upon the Fair Market Value, correctly ignoring the other active listings.
In today’s market of very little appreciation, the best approach is to carefully consider the most recent pending and comparable sales and apply very little weight to active listings. Now, if there is an active listing priced below the pending and closed sales, that is a home that must be taken into account. That may be what it takes in some neighborhoods to achieve success. When properties sit for an extended period of time and we move into the slower seasons, some sellers may choose an aggressive approach and price their home for a quick sale. Take note and watch to see if it attracts a lot of attention or attracts multiple offers. These homes can even sell for higher than their asking prices. The bottom line, aggressively priced homes cannot be ignored, as they are paving the way to new trends in an ever-changing housing market.
Active Inventory: inventory reached the 2014 peak a couple of weeks ago.
The 2014 active inventory peak of 8,084 homes was reached a couple of weeks ago, part of a normal, housing cycle. In the past two weeks, the inventory shed 198 homes, 2%, and now sits at 7,886 homes. The drop ends the trend of continuous appreciation all year, and is a welcome relief to an inventory built on the backs of unrealistic, overpriced sellers. The inventory cyclically peaks towards the end of August, but last year it did not peak until October, an unwelcome sign that sellers were ignoring a simple market fundamental: the Autumn Market downshifts, in terms of demand, from the Summer Market. This year, sellers are quickly coming to the realization that the most active time of the year to sell is behind us, deterring many homeowners from even placing their homes on the market. Many overpriced listings are opting to not reduce their asking prices; instead, they are simply throwing in the towel.
Last year at this time there were 5,965 homes on the market, 1,921 fewer than today.
Demand: Demand decreased by 3% in the past two weeks.
Demand, the number of new pending sales over the past two, decreased by 86 and now totals 2,499, a 3% drop. Over the past 10 years, the average drop at the end of August is 6%, so a 3% drop beats expectations. Last year at this time demand was at 2,613, 114 additional pending sales compared to today. From here we can expect demand to continue to drop a bit as we enter the Autumn Market. With kids back in school, many buyers will wait until next spring to continue their quest for their new home.
The expected market time for all of Orange County is 3.2 months, or 96 days, a slight seller’s market.
Distressed Breakdown: The distressed inventory decreased by 4% in the past two weeks.
The distressed inventory, foreclosures and short sales combined, decreased by 13 homes, 4%, and now totals 277. The distressed inventory has not changed much this year after starting the year at 271. The long term trend is for it to remain at a very low level.
In the past two weeks, the number of active foreclosures decreased by 7 homes and now totals 75. 1% of the active inventory is a foreclosure. The expected market time for foreclosures is 58 days. The short sale inventory decreased by 6 homes in the past two weeks and now totals 202. The expected market time is 43 days and remains one of the hottest segments of the Orange County market. Short sales represent 2.6% of the total active inventory.
All information deemed reliable but not guaranteed. Information courtesy of Steven Thomas Reports on Housing.