MICHAEL EDLEN, REAL ESTATE CONSULTANT
In the 10 years between 1998 and 2008, the housing market in Santa Monica had not shown any significant reduction in values. Aside from a few periods of relatively flat price levels, market values had steadily trended upward since 1998. In the last two years, however increasing numbers of sellers discovered that the market would not yield a price that they had expected. Due to a now-obvious series of reasons, it is clear that the real estate environment significantly impacted home prices in Santa Monica and similar highly desirable Westside areas.
Owners who truly wish to sell their home in a reasonable time period must now be objectively realistic in determining the price positioning of their property. The ability to price higher than recent current values no longer makes sense in a market, that is no longer rising! In fact, to set a price above theoretical current value may only lead to great frustration, significant financial risk, and an indefinitely long time on the market.
It was relatively easy to sell a home in an upward trending market. It can be extremely challenging to maximize value in a flat or downward moving market. Skill, experience, and well-reasoned marketing systems are more important than ever in a market such as the one we are now witnessing. As the housing market finds its balance, many sellers are still succeeding in negotiating contracts with buyers who are willing to benefit from the great opportunity available to them.
The good news is that with lenders finally loosening up on loans, buyers are once again able to obtain financing. As long as their credit is good, they have enough down payment available, and they have stable and sufficient income, loans are being approved.
People don’t want to feel that they are losing money by selling their home for less than they feel it is worth. However, the market value of their home will not be any higher than the market dictates simply because they wish, hope, or need for it to be so. In some cases sellers unreasonably and unrealistically try to attain a price that is significantly above the real current value as determined by current market forces. For many sellers who ask a real estate agent, “How long will it take to sell my house?” the more appropriate question may be, “Will my house sell at all?” Some examples may help illustrate the risks involved. One seller was of the opinion that their new home was worth more than $4.5 million, whereas in hindsight it became clear that its value was closer to $4 million. After a fruitless attempt and several price reductions over many months, they changed agents and eventually were relieved to have it sell in the $3.7 million range. Had it been priced close to $4 million to begin with, the seller would have succeeded several months earlier and with much better results in time and money.
In another case, an agent recommended a starting price based upon homes that had sold 6 to 12 months earlier, when the market had more energy. That agent also did not take into consideration the face that this listing did not show as well as several others currently on the market. In the year that it was on the market, the price was lowered a total of $700,000, and even this was not enough to sell in the current market conditions.
It is also helpful to understand the commodity aspect of houses. Similar to the valuation of a publicly-traded stock, the value of houses fluctuates in direct relationship with changes in demand or supply. As an obvious example in the stock market, many investors experienced a massive reduction in portfolio values due to similar market forces, and are now enjoying a strong upswing in recovery. While the housing market is certainly far less volatile, its general price movements are nonetheless heavily impacted by such economic factors.
For owners who truly want or need to sell their home in a timely way, they may deeply regret either not pricing their home correctly to begin with or, at the least, adjusting their sights more realistically very quickly if the market feedback so indicates.
For the past 24 years Michael Edlen has provided real estate counseling services to prospective buyers and sellers. Most of his business is derived from a referral base of over 900 past clients. More tips and information are available on MichaelEdlen.com. He can be reached at 310.230.7373 or Michael@MichaelEdlen.com.