Everyday we are inundated with stories about the problems in the housing market and the fact that we are entrenched in a buyer's market. Yet somehow homeowners are still of the mindset that they should price their home high to allow room for negotiation, and maybe they will get the pie-in-the-sky asking price that they feel is possible if they somehow find the "right" buyer. This approach is becoming more dangerous by the day for a number of reasons.
First and foremost, we are now in the midst of a full-blown mortgage crisis, and this is not media doom-and-gloom. This is real. Lenders are closing their doors, and the ones that are remaining are tightening up their restrictions. I've had buyers that were qualified when they started looking become unqualified because they are not what mortgage banks consider "A" paper." The high-flying appraisals of the past are not coming back. Appraisals are getting tighter, which means that the home must appraise for the sales price or else someone is going to have to make up the difference in cash. Even if the buyer doesn't need a full 80% loan, they are not going to want to pay more than what the banks are considering market value.
Next, is the competition factor. In most of my area, inventory is up at least 50% (usually more) compared to 2006, and there have been around the same amount of closings (often times less). Homeowners have to understand that they are now in a very competitive market. It's the basic laws of supply and demand. There are fewer buyers looking at more homes. If you want to be the home that sells, make it a point to be the most competitively priced. "Hot" homes will still usually get accepted offers within 30 days.
We are in the information age. Buyers are very informed due to the Internet. Often times they are telling us about homes that hit the market before we even let them know about it. They know prices in the areas that they are looking in and know when a good deal is offered. They also know that most homes are generally going to drop in price, so there is no sense of urgency. In fact, many of them are now playing a virtual game of "chicken" with the sellers, waiting to see how low the price will actually go before making an offer, and then they feel that the sellers are desperate, so they want to make lowball offers. This hurts the homeowner because they are not getting offers, but also because these same educated consumers are also tracking every new home that comes on the market. Eventually, a perfectly good home will sell below market value if it stays on the market long enough because it becomes "stale" and then people start thinking that there must be something wrong with it if it hasn't sold yet.
The fact of the matter is every one of us has the tools, but not the power, to have EVERY listing in contract within 30 days (and probably a lot sooner). Unfortunately, the person with the power is the one that the homeowner looks at in the mirror each morning as they wake up in their home that isn't selling. To paraphrase a classic line from the movie Field Of Dreams, "if you build it, they will come."... "If you price it right, they will make offers!"
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AMEN BROTHER!! I could not agree more.