As we continue to correct ourselves from a sellers market that lasted about three years, I'm finding in my conversations with potential buyers, and my interactions with both buyers and sellers, that one thing contributing to the stagnation of the current market is entitlement.
Someone said that sellers are always the last to know when the market turns into a buyers market. You can find this to be true by checking the market statistics (http://www.nvar.com/ and click 'Market Statistics'). Count the days on market in different zip codes, or by city, and you'll see that there are homes that have been on the market for over six months. Don't be surprised when I admit that as a buyer's agent, I've shown homes that have been on the market for over a year!
Some sellers are still 'holding out' for the buyer who wants to pay them top dollar for that home that is in obvious need of repair, shows (and smells) terribly, and needs a long visit from the maid service. These sellers feel entitled to a high price. Some comments that I've heard from potential sellers include:
- "Well, my neighbor got $30,000 more for his house (two years ago)"
- "I don't want the hassle of painting and recarpeting, I'll just do it after I get an offer"
- "I know it's more than what the neighbor is asking, but I have a new roof"
As Neicy Nash of Style Network's TV Show "Clean House" would say, "These people need to be rescued from their foolishness!"
But some buyers are contributing as well. Feeling entitled to a nice house and expecting to pay 10% of market value. Even though foreclosures and bank owned homes are already priced below market value (these homes usually have 3-5 appraisals done prior to entering the market), some buyers still submit low offers, and then are surprised when their offer is rejected, or if they are outbid and the home is sold to another buyer at a price that they would have paid. This leads to buyer frustration, and sometimes buyers feel angry a good house got away.
So, how will entitlement stagnation affect our real estate market?
- Well, already if you were approved with 100% financing before January 1 of this year, you'll likely have to come up with a 5%-10% down payment. This will force some buyers out of the market because they don't have enough money saved.
- If you were approved before January 1 of this year and your credit score was below 680, you may have to pay a higher interest rate because of reforming mortgage programs. This means a higher monthly payment on your mortgage.
- Homes (both resale and foreclosures) that are in need of thousands of dollars of repairs will stay on the market longer. The pool of buyers with money for repairs after forking over their downpayment will continue to get smaller.
It reminds me of those old western tv shows where there were two gunfighters walking away from each other. They take steps away and get farther apart, they turn around...somebody has to pull the trigger.
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You have a great way of distilling these market situations into the essential, easily understood elements. Have you thought of posting this to a couple of more groups? Realtors would be a good one. This is good stuff for both the consumer and the professional. Thank you, Tamara.