Home Sellers: Reality Bites

The psychology of buyers and sellers in the real estate marketplace is important to properly price and sell properties. With the current upheaval in the market, it is more important than ever if sellers are to price their properties for sale, and for buyers in making a rational decision to buy.

For sellers, the following points are key:
Home values will (best case) stay stagnant or decrease.
Qualified borrowers are looking for deals.
Fewer borrowers are qualifying for home loans.
Rising foreclosures tend to negatively affect home values.
Increased "days on the market" (DOMs) increases the likelihood that buyers will aggressively negotiate prices down.
Continued stress in the financial markets will affect consumer confidence.
Loans may take longer to close.
Appraisals at sales price are becoming more difficult to obtain.
For buyers, properties should be funded before contract contingencies are removed.

It's critical to encourage sellers to price homes to sell -- and sell quickly -- decreasing the need for price reductions.

While price is important, it is not the only consideration for buyers. Location as always is a factor... 'good' location better than 'bad' location, whatever the specifics are. Unfortunately, location is what it is. If there are negatives to the location, re-pricing downward will come into play.

Condition is another important consideration, and one that the seller does have some or absolute control over. In addition to paint and carpet, cleanliness, curb appeal, and deferred maintenance, there may be other factors that affect the buyer's decision to buy. Such factors might include outdated and old (but working) appliances, unpermitted additions or other unpermitted features of the property, excess possessions, showing restrictions, or inadequate incentives offered such as paying buyer costs and/or increasing commission or paying for loan buydowns.

Sellers should be thinking long and hard about ANY factor that would tend to push a prospective buyer away from a decision to buy, and reduce or eliminate it from the equation. And once a buyer gets involved with a property and makes an acceptable offer, the work doesn't stop there. Homes are falling out of escrow at an alarming rate, whether the buyer's reason is disclosure or inspection of property condition, inability to qualify for financing, or just 'cold feet' because the buyer let relatives talk him or her out of the purchase. While not much can be done about this last condition, it is a significant factor these days. Again, sellers should be addressing those factors they actually have an effect on like condition and pricing.

In re-reading the above, the general climate of the real estate market can best be described as 'unsettled'. As has always been the case, in a declining market many sellers dig in their heels (at first) and loudly declare that they will not, absolutely will not, give their homes away. I have sympathy for their feelings, but if they seriously want to sell, they need to recognize market realities. Home prices are on a declining trend, and reality is, buyers don't want their hard-earned down payments and equity in a home that they have purchased to disappear in a depreciating asset, just as sellers don't like to see their equity disappear. Plus it is pretty difficult to rationally make an argument that it's OK to preserve the equity for sellers at highly appreciated levels, while having the buyer take on the risk of equity decline. Another way to put it for sellers is: what makes you so special and immune from the swings of the housing market? Prices go up... prices go down. In general and historically, housing appreciation has been about 5% per year on average over a long time. But not every year in particular.

If you are a seller, you might think I am being unnecessarily tough on you. No, I am just re-introducing you to reality. If you don't really want or need to sell, then don't. Stay in your home, make your housing payments if you are secure in your ability to do so over the next four or five years no matter what the larger economy does or how it affects interest rates, pay down your mortgage balance and build equity over time. Re-capture a traditional view of home ownership. Don't whine about the swings of the market and what your home used to be worth. Be happy.

But if you don't know if you will be able to make the mortgage payments over the next year or two or three as your interest rate adjusts for the mortgage terms that you have, you should seriously consider selling right now. The market has swung, and foreclosures are going to go up as the conditions for a 'perfect storm' for housing develops. If you were counting on home price appreciation to bail you out, as it has bailed out so many people over the last five years, you should re-think your plan.

We can help. As always, the SCV Home Team and I want the best for you. We really do. We want to help you make rational decisions in your own best interests. If the best decision for you and your family is to stay in your home and wait some years for the market to work out the excesses, that is great. If the more prudent course is to 'downsize' from where you are, it is best to do that by choice and rationally, rather than wait a few months or years for an NOD, a foreclosure, and then either the Sheriff's knock at the door or a moving van in the middle of the night.

Yes, reality can bite. Just don't let it bite you.

If you live in the Santa Clarita Valley, or the adjacent San Fernando or Antelope Valleys, and we need to have a serious discussion about your particular circumstances, call us at 661-287-9164.