Wrong Expectations

Many buyers and sellers alike have the wrong expectations when it comes to the Orange County housing market.

 

Wrong Expectations:  Many buyers expect GIANT discounts while a lot of sellers overvalue their homes.

This IS a perfect time to buy: record low interest rates, prices down 30% off of their peaks, less competition during the holidays.  However, this does not translate to writing up an offer at 10% off of the asking price.  It just ends up being a giant waste of time for everybody involved.  Similarly, overpricing a property is a major waste of time for all involved as well.  Many homeowners, who heard that homes were flying off of the market in the lower ranges, multiple offers were the norm and that the year over year median price had increased, translated that it was the perfect time to sell.  The bottom line remains the same; the more realistically priced homes sell near their asking prices.  Most buyers and sellers have just had the wrong mindset in their approach to the housing market.  It is time to take a close look at the facts:

 

FACT:  for all homes sold in October, the average sales price was 3% less than the asking price.

For a home listed at $500,000, that’s a sales price of $485,000.   

 

FACT: short sales ultimately sell for less than traditional sellers who have equity in their homes. 

Short sales, on average, take months to sell.  If a home takes six months to close and it is not until the fifth month that short sale approval is granted, a buyer is going to want a discount in order to wait that long for an answer.  The trouble with short sales is that a close date cannot be determined upon writing an offer.  Also, most short sale sellers are cash strapped so there is typically deferred maintenance.

 

FACT:  foreclosures sell for less than traditional sellers who have equity in their homes because most are in need of TLC.  When buyers need to replace the carpet, paint, replace a dilapidated roof, repair the plumbing, replace missing fixtures or appliances, they are ultimately going to want to pay less for a home.  Foreclosures are priced accordingly. 

 

FACT:  for all foreclosures sold in October, the average sales price was 2% less than the asking price. 

For a foreclosure listed at $500,000, that’s a sales price of $490,000.

 

FACT:  for homes sold in October, the average seller had to reduce the asking price by 3% prior to procuring a successful offer.

Most sellers are being overzealous in placing their homes on the market initially.  It ultimately is a waste of market time.  It is better for sellers to take the time in arriving at the price, carefully scrutinizing the most recent comparable sales and pending sale activity.  Active listings do not carry much weight in pricing unless the home is underpriced.

 

FACT:  homes in poor condition, or poor locations, sell for less than homes in good condition or a good location.

Successfully selling in any market is determined by a home’s price, location and condition.  Sellers cannot change their location, so they only have control over the asking price and the home’s condition.  Homes that back to busy streets or power lines sell for a lot less than a home that is in the center of a subdivision.

 

The housing market would be a lot simpler if buyers approached the market with the knowledge that the market will not budge much off of asking prices.  In turn, sellers need to be aware that their unrealistic original, initial asking prices will only result in future reductions until ultimately successfully achieving their goal of selling.

 

 

Active Listing Inventory:  The listing inventory continued to drop, shedding another 2% in two weeks.


The active listing inventory continued its decent, dropping slightly over the last two weeks by 274 homes, now totaling 11,151.  After peaking in mid-September, the inventory has dropped by 741 homes, or 6%.  Last year at this time there were 3,432 fewer homes on the active inventory compared to today. 

 

Demand:  In the past couple of weeks, demand has remained unchanged.


After shedding 4% a couple of weeks ago, demand, the number of pending sales over the prior month, dropped by only two pending sales since then and now totals 2,670.  Last year at this time demand was at 3,241 pending sales, fueled by a first time home buyer tax credit that was expiring in November 2009.  

 

Foreclosures and Short Sales:  In the past two months, the active distressed inventory increased by only 38 additional homes.

The active distressed inventory increased by 3 homes over the past two weeks and now totals 4,064 foreclosures and short sales.  The distressed home market is not changing much, adding less than 1% in the past month.  It is apparent that the distressed inventory has hit a peak for the year.  The distressed inventory now represents 36% of the current active inventory.  Last year at this time, there were 2,462 distressed homes on the market, 1,602 fewer than today.  The number of foreclosures within the active listing inventory increased by 31 homes in the past two weeks, from 688 to 719.  The expected market time for foreclosures is 1.68 months, an exceptionally HOT seller’s market.   Short sales, where a homeowner attempts to sell a home for less than the total outstanding loans against a home, requiring lender approval, decreased by 28 homes over the past two weeks and now total 3,345.  The expected market time for short sales is 3.47 months, not as hot as foreclosures, but better than the Orange County housing market as a whole.

 

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