We have read a few blogs recently which discussed the concept of “the best values in the North Shore market” being the homes that have been reduced the greatest from the original listing price.
We think this is “hogwash”.
Many buyers are viewing these as the “real” bargains in the market. There are properties that are currently being offered at prices that are 30-40% below their original asking price. Some “value” buyers will only consider properties that have been reduced and reduced and then reduced more. On the surface, these seem as though they are practically being given away. They seem to think it’s like Black Friday in the North Shore market, but you don’t have to wake up at 2 am to participate.
The problem is that this is assuming that the original offering prices were reasonable and/or equitable. If the price was marked down this dramatically, the answer is probably “no”. The real estate market, like all markets, are designed to be very efficient mechanisms. If a property is effectively marketed to all participants, then supply and demand should determine the appropriate price. The original listing price is a very subjective item.
When we review local real estate statistics, we see a very close correlation between market time and the percentage of original asking price received by the seller. The quicker it sells, the closer to original asking price it transacts at. In fact, even in today’s difficult market, homes will attract multiple offers, and hence higher prices, when the original price is found to be attractive by buyers in the marketplace.
Wouldn’t this translate to the concept that properties that are priced attractively from the get-go are the “best bargains in the market”?
Most buyers are very sophisticated on The North Shore. They don’t make impulsive purchases and are very familiar with the current inventory. They know what homes are worth and when a well priced property hits the market, they are ready to pounce.
Don’t be enticed by prices that seem to good to be true. They probably are.
Joy....frustrating for sure. We suppose it's counterintuitive for some people.
Thanks for the comment Kevin. Wish you wouldn't link away to your site in your comment. Thanks
Fair market value or FMV needs to make a literal comeback. No sales hype necessary or allowed. Willing buyer and seller meet and fact finding rules the day. Values are identified, confirmed and then acted on. Good post
Richie...This brings to mind buyers purchasing directly from sellers via word of mouth. Without exposure to the full marketplace, these are often traded at much higher or much lower than FMV. That conversation is material for another blog post.
Howard and Susan, we seem to have a discount mentality. I think this is what causes homeowners to over price their property. They think by the time a potential buyer subtracts their proposed discount, the seller will get their real asking price. Unfortunately, it doesn't work that way with over priced properties.
I say this over and over and over. People pay what they perceive a home to be worth, regardless of list price. If it's underpriced at $500,000, you'll get multiple offers. If it's over-priced, you'll be ignored.
Some people, though, want the deal they can brag about, and will even pick the wrong house so they can say "I got it for $400,000 off".
No one is impulsive these days when it comes to purchasing real estate. I don't know why sellers think that people can really be that naive to fall for these "Black Friday Deals" that were grossly overpriced int he first place!
Michael...We wonder if the "discount mentality" is a symptom of the difficult economic times?
Leslie...For those buyers who feel they need to get a huge discount, you can advise them until "you're blue in the face"...they just know better. They often won't recognize the error of their ways until it comes time to re-sell the property.
Jennifer...Now that's a good question!
I typically see these drastic drops as a red flag. Something was just mishandled from the "get-go" regarding these properties, or there is a glaring fault in the property. Anyway, I'm on alert when I see this type of advertising. To me, it's a dead giveaway of something. Always felt that way when I was doing appraising, as well. Call me cautious .. or perhaps a bit cynical about this. You make a great point here regarding pricing. The criteria as to what is an actual bargain can be pretty wide and varied. In this day and age of Groupon and such ... I'm guessing some see this as good marketing. Buyer beware ...
Gene
PS: Congrats on the Feature!
Hi Susan and Howard!
I agree (again) with Leslie (#13) - for some buyers it's all about the deal regardless of value. They want bragging rights even if it might mean they didn't get the best value!
This is so true. And that is why marketing gurus want you to price, or advertise to these human foibles.
Hi Gene...Thanks so much. We're hoping that no one wants to be the Groupon of residential real estate. (of course I'm speaking in regard to business model, not level of success). At least not in our market.
Hello Margaret...Would you please tell those buyers to listen to their agents who understand value in the market.
Sandy...We humans are so easy to manipulate!
This is why it is so important to discuss Sold Comps in the area, whether you are representing the buyer or the seller. You can typically see a distinct difference in the Active Comp price ranges vs. the Sold Comp price ranges. I often have buyers that want to make an offer on a home before looking at the comps and they will just throw out a number they want to offer because it is a certain percentage of the list price. Thanks for sharing Howard and Susan
Mike...Those are the buyers who have become real estate experts because they read a few articles on the internet. Why would they need the advice of a local expert?
“There are three kinds of lies: lies, damned lies, and statistics.”
This quote, often ascribed to 19th Century British Prime Minister Benjamin Disraeli, is one of my favorites. I think that it is applicable when used to show that the current price of a house that was terribly overpriced is now a bargain price.
Loved the analogy. It's a crazy market, and the toughest part of the job is getting sellers to price their home right, and working with buyers who want to low ball and rake sellers over the coals.
Susan and Howard - It does seem that the sooner homes sell, the closer they sell to market price, and the deep discounts you discuss are likely a result of being overpriced to begin with.
Tamara...The only answer is to do everything we can to educate both our buyers and sellers about the market.
Christine...It does seem counter-intuitive to many sellers that "they need to offer it lower to sell it higher". Back it up with statistics.
Comments(26)