I study statistics. It is what I do in my spare time: on vacation; at midnight
when I can’t sleep. It is how I develop strategies on how to advise clients in placing a value on their home. In 32 years of being a Realtor, I have never seen a market like this. Other times when we had this fast a market it was because the DEMAND was high. In this market it is because the SUPPLY is low. The number of homes actually selling is almost exactly the same as during the past 2 years.
Nationwide, it is the 31st month of year over year decline in the number of active listings available from which to choose. It is the lowest level of inventory since NAR (National Association of Realtors) started tracking inventory in 1999. In Dec.-nationally, inventory levels were down 10.3% from the previous Dec. Locally we are seeing a SEVERE shortage of homes on the market in certain price ranges. Today, August 13, 2018, for example, there are only 4 homes in Brookfield under $400,000 that are 4 bedroom colonials!! In July 2017 there were 240 active single family homes for sale in Danbury compared to 170 in July of 2018. That is a LOCAL decline of 29%. Brookfield inventory levels are down 18% and if you look at JUST homes under $400,000 the inventory levels are down 38%!!! The number of homes sold in Brookfield under $400,000 during the month of July, year over year, was exactly equal. Most homes under $400,000 are selling within days, if not hours with multiple offers. Don’t get excited, prices aren’t spiking yet but we may see a significant appreciation in these price ranges by the end of the year.
I KNOW that determining value is NOT a Price Tag but a Strategy.
There are three strategies to putting a value on a property. If Realtors use older strategies, they may be leaving money on the table for their Sellers.
1. The Market Based Approach- Using Comparable Sales
This is the STANDARD way in which Realtors price a home. They look at where the past sales have been and they price the home at that level. In a low inventory market this does not give enough value for uniqueness. It no longer becomes, there are 5 other homes just like this one. In this market you need to place MORE value than ever on unique features such as a large back yard or a level driveway. This house might be the only option with a pool instead of one of six.
Using a strict Market Based Approach, the Realtor may be leaving money on the table as the Seller is encouraged to accept an offer at the historical 97% of the list price. This strategy does not feed into the dynamic nature of this market.
2. The “LESS IS MORE” Approach- Pricing it BELOW the Comparable Sales
I would use this approach in the UNDER $400,000 market as I know there are 6 Buyers ready to pounce on these homes. In this case the fear of loss kicks in as these buyers have already been outbid on multiple homes and are ready to go “all in” with their bid hoping to close out their opponents. We are currently having a contest in the office on who can get a house sold for the most OVER the list price. Right now the leader is $17,000 over the asking price. The bids come in OVER the asking price. The Seller then has the opportunity to negotiate UP rather than to negotiate DOWN.
3. The Retail “Scarcity Creates Value” Approach- Pricing it ABOVE the market.
This is an approach I am using on homes over $400,000. We don’t have as many buyers waiting in the wings at this price point but the smaller buyer pool still has a limited number from which to select. Homes that are NEW to the market generate more excitement to the existing buyer pool and, from the buyers perspective, may be worth more, .like new merchandise in a store. If you take this approach you must have built in systematic price discounts. The up side is IF the house sells at the higher price there is a greater profit.
In my next blog post I will discuss how Realtors should counsel Buyers in and inventory starved market.