I couldn’t possibly estimate the number of times a buyer client that I’ve worked with has expressed that the home they’re interested in is overpriced. But I can say it probably matches the number of times a seller of a property I was selling expressed that the price a buyer offered was too low, even when it was the only offer they received after some time on the market. This dynamic is exacerbated during a changing market.
During the Great Recession and the subsequent housing bust, home sellers were chasing a declining market with one price reduction after another until, at its low point, home values had declined a full 25 percent in the greater Denver area. It was brutal! And a large part of the reason for this was, of course, fewer and fewer buyers available due to unemployment and fear of how low home prices might fall. Many investors with available funds got some great deals at that time. And a number of lucky homeowners with solid jobs did, as well. But, needless to say, there were no happy home sellers during that recession.
It was December of 2012 when I saw home values bottom out and start their recovery. And that having not been the first market cycle I’d experienced, I was not surprised to see how quickly that recovery got legs. I like to say, “There’s a springboard at the bottom of every market cycle.” Cue the buyer disappointment. By
late 2015, on average, most homes recovered to their pre-recession values. Some recovered faster, and some, like the luxury market, took longer. That recovery occurred for one reason: Interest rates were reduced multiple times until Prime actually hit zero for a little while. Businesses began rehiring, and new jobs and job security, along with record-low mortgage rates, gave homebuyers the confidence to jump back in. So, naturally, home prices were rising. This brought endless complaints from buyers of having to pay too much for the homes they were selecting, even though those homes were still rising quickly in value. I will tell you that some home sellers at that time became greedy and then were disappointed when they had to adjust their price or wait for the market to catch up. The truth of the matter—the market is what the market is. And buyers’ and sellers’ expectations surely breed disappointment.
Data doesn’t lie, although unfortunately it can be manipulated. This is why I am constantly monitoring every data point that affects current market value and, to an admittedly small degree, future value. My industry has used the term “Market Analysis” for estimating home values for decades, but it’s important to know that such an analysis is much more an art than it is a science. If one is looking at the wrong data, especially data they prefer for their own purposes, a.k.a. confirmation bias, they will arrive at a deluded conclusion. If the data is incomplete, it will also point to a false number—as easily too high as too low. The numbers should determine the value, not the other way around. This isn’t just for the benefit of sellers. We often do a market analysis for buyers on a home they want to buy. Buying or selling, we can determine a fairly accurate “market value,” but, again, it must be done objectively, which is why we often arrive at a value lower than what the seller wants or higher than what a buyer wants to pay. Ultimately, the market value is determined by what a ready, willing and able buyer agrees to pay. I have a rule of thumb that, under current market conditions, 10 showings without an offer, or two weeks with little or no showing activity, indicates a property is overpriced. In a buyer’s market, those numbers stretch out slightly, and they contract somewhat in a seller’s market. My favorite analogy for overmarket home sellers is, “It’s like you’re fishing, but your bait isn’t reaching the pool of fish. Gotta lower the bait!”
The bottom line here is that neither you nor I determine what price a home will sell for. The market will determine that, and no matter how disappointed you may be in that ultimate price, be consoled by the fact that it could be worse! Buyers can be grateful they are blessed to have the ability to own their own home, and sellers can be grateful for the 100 percent-plus run-up in value they enjoyed for having been a homeowner for the last 10 years.
Wishing you all Happy Homes!
