The most common question most Realtors are asked, particularly in the back slapping among friends: Are we at the bottom of the market, yet? Almost every Realtor wants to say it is here. In truth, we do not know. There are sign of stabilization, and signs of further price reduction. Additionally, you do not know that you have been to the true bottom until you begin to climb out of it. It can only been ‘seen’ with clarity in ‘hind sight.’ What makes it more complicated is that the market is not a single market: In real estate, we talk about all real estate being local. In the advent of a global economy, and a global recession, that seems almost counter intuitive, but it is not. The condo market in Providence is very different from the suburban real estate market in East Greenwich. Furthermore, the markets are very different in the brackets of price points. The first quarter MLS statistics showed a significant drop with the ”average” single family price for East Greenwich, from $474,000 to $323,600. The average price house did NOT drop by a third. Yes there was a significant drop in prices overall, but not as extreme as the numbers suggested. There is a reason, not a rationalization, for the change. More less expensive homes were sold. That is more homes some in the 100-400 range than sold in the upper price point, so the average was much lower than it should have been. What you really want to know is what is the true change in price for a specific property. Naples Florida is now given market information bases on price points: 100-350k, 351-500k, 500-1000k, and up. This is not a rationalization, but rather a long explanation, to the importance of looking at like kind homes to get a ‘true’ picture of the real value of the home. A four bedroom Moorehead colonial is worth more in Signal Ridge than Cindy Ann Farm, overall. All real estate is local, even by neighborhood. You need to compare like kind with like kind to determine true value.
As a seller you need to analysis the properties in your immediate neighborhood. What has sold recently, what is pending, and what is on the market? You need to look at the absorption rate, how many houses are selling each month, and how long will it take to sell the entire inventory at the current rate of sales. A healthy market is about 6 months. Right now we are at 10.2 month nationwide. We are much higher in the upper bracket, above 750k, in East Greenwich. Once you complete this analysis, you need to price in a COMPELLING way, not a competitive way. To be effective, meaning to sell quickly and close to real value, you need to price aggressively low.
As a buyer you need to do the sale process to identify the best buys in town. It is also helpful if you have two are three choices when it comes time to negotiate. The market has an oversupply, and a noteworthy oversupply of overpriced properties. Sometimes the overpricing is the result of the existing mortgage balance, sometimes the result of poor-inexperienced agent advice, and sometimes seller’s exuberance-nostalgia: “My house is the best in town.” Many buyers are attaching a list of the comparables to offer to purchase package. Some sellers are still ignoring the comparables. As a buyer, it makes sense to move on to a seller who is realistic.
What you need to know about this market, very simply is that price matters. You can have the best landscaping, the most expensive kitchen appliances, and the most awesome home theater, but your price has to be competitive to encourage a buyer to make an offer.
Now if the dynamics of the market are not enough to persuade you, be aware of the new appraisal underwriting requirements. In an effort to curb potential mortgage defaults, most lenders have adopted new appraisal guidelines. One of the most challenging elements is called ‘bracketing.’ In truth it is really not new, but now the rule is applied in all cases. Very simply, an appraisal my have comparable sold properties below and ABOVE the value of the subject property within the neighborhood. It makes it very difficult to obtain a mortgage for the most expensive sale in the neighborhood. The result has been that many transactions have been RE-negotiated after the appraisal.
To say it, yet again, price matters. Price where the market is, not where you would like it to be. Otherwise, wait until the market recovers. The cold hard truth is buyers are careful and strategic right now. They will not overpay, even if they are from New York, Boston, or Los Angles.
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