Ever wonder HOW prices rise for houses?
Before I got into real estate, I didn’t really think about it. You’d read stuff like the average price went up something like 4.6% last year…I assumed it was like a rising tide and affected every house the same way at the same time.
But it doesn’t work like that. It works more like traffic taking off after a stop light. The first car goes, then the second car see the first car moving and goes, then the third car sees the second car moving and goes, and so on. As much as I wished they would all move at the exact same time, they don’t. And that is exactly how prices go up in real estate.
There are lots of factors impacting value: Supply/demand, location, price range, condition, etc. No surprise here, but when prices are going up, the neighborhoods that are the most desirable and have the least supply go up first. Once there is enough of a price gap between those neighborhoods and the next best neighborhood, the prices of the second best neighborhood start to rise as buyers see a bargain and move in that direction. Then when the prices are up on the second best neighborhood, that does two things: It makes the prices go up on the first choice neighborhood since it is better, and it also drives bargain shoppers to the third best neighborhood. This process ends up going through ALL the neighborhoods in town as long as the market remains hot.
I sold two houses in one particular neighborhood several years ago to some friends wanting to rent them out. I was telling my friends that I thought the prices in the neighborhood were about to go up since there was a big gap between what an identical house was selling for in other neighborhoods. Since I tend to Geek out on this type of stuff, I don’t think they were as into it as I was…..but now their houses are each worth $35-45k more in just a few short years.
So, next time you are stuck in traffic, forgive me if it makes you think of real estate.
Let’s say there are 10 houses for sale and 10 buyers, which would be a balanced market.
What happens with the #1 house? It gets multiple offers and sells immediately.
What happens to the #2 house? It is now thrust in the #1 position and gets multiple offers and sells.
Why does all this happen? Because everybody wants the nicest house they can get.
This process continues down the line UNLESS new listings come on the market. You can have the #1 house sell and the #2 house still be the second best one IF a fantastic new listing hits the market and assumes the #1 spot.
What about that #10 house? Unless there are far more buyers than sellers, the #10 house will sit there for a longtime. Every buyer has seen it and decided to wait for a better house to hit the market. Sometimes this #10 house can become something like a #2 or #3 house with a price reduction. Price is everything in real estate.
I’ll put this into some real world things you may have seen.
A house you have been following has been on the market for a while. Every other house in it’s price range sold the first day on the market. You wonder why it hasn’t sold. Then all the sudden it gets multiple offers. That is because the houses that were better have sold and now it is the best available house in its price range.
A house you have been following has sat on the market all summer and fall. It’s a house nobody wanted. Much to your surprise, it sells in January. This happened because there are far fewer new listing that time of year and now this house appears to be one of the best. If this house doesn’t sell in the winter, it will sit on the market during the spring/summer/fall again because there will always be a new listing that is better.
The market is all relative to what else is available and it changes daily. As a seller, you want to get your house to be one of the best ones available in it’s price range.
You know, I’ve been doing this for a long time. You start to see patterns after a while. I guess that is called wisdom?
Here are some things I have learned that are typically true in real estate:
- If somebody says they are going to make an offer, every hour afterwards that you don’t have it in hand reduces your chances of getting it at all.
- If you are a seller and decline a showing, few buyers ever reschedule a time. They say they will come see it later, but never do.
- Usually the best offer you are going to get is the first offer. The times it isn’t the best offer, it will be the worst.
- If you get 10 offers on your house, 8 will be practically the same, one will be crazy low, and one will be the best.
- If 20 buyers have seen your house and given the same feedback about the condition and list price, odds are the next 20 buyers will say the same thing.
- If you get a full price offer the first day, that means you priced it just right. Don’t wonder if you should have asked more. When a house is priced too low, almost always does it get more than one offer and both will usually be above the list price.
- If you feel like you got a good deal on a house, most likely it is because it was a house nobody else wanted. You will have to give a good deal when it is your time to sell.
- Crazy realtors have the craziest clients. You can often tell a lot about a buyer by who their realtor is.
- The more complicated the deal is, the more likely it is to fall apart.
- The longer the time between contract acceptance and the closing date, the more likely it is to fall apart and not close at all.
The market is full of people who know they can sell their old house in a heartbeat, but are worried that they won’t be able to find a house to buy…..so they do nothing.
Here are a few options for you:
IF you absolutely have to make an offer contingent on selling your old house, have the old one ready to list as soon as you make an offer. The listing agent for the house you want to buy will want to see it on the market ASAP. Many people focus on finding the right house and have done no prep work on their old house. They often end up losing their new house. Any decent agent will counter your offer with what is called a “Kick-out Clause.” That means that if another buyer comes along without a contingency, you either need to step aside or remove your contingency and buy the house. If your house isn’t ready to list, or isn’t appealing enough to sell immediately, odds are you will lose your new house. I know it is tough, but the best thing to do right now is focus on getting your old house ready to sell, THEN go look at houses. And every client I have in this situation is going to think I am talking to them when they read this, but I am talking to ALL my clients in this situation 🙂
The absolute best thing to do when you need to sell first is to…..just sell first. Yes, I mean sell your old house and find somewhere to live temporarily. Will it be fun? Heck no, but you will get top dollar for your old house and be in the best bargaining position on the new one since no seller today really wants to accept a contingency offer. If a seller accepts one, it is usually a sign that you are paying waaaay more than the next highest bidder and/or that you have selected a house that is having trouble selling in the hottest market ever. Neither of those are good.
IF you can buy the new one without having to first sell the old one, then do that. You know you will sell the old one quickly and it is really nice to be able to get the new one ready before moving in.
But what if you can qualify for the new house without having to sell, but you really want or need your equity from the old one for a down payment? Easy. Get a home equity line of credit on your old one and use it for the down payment on the new one. Sell the old one and pay it off. It’s a simple way of moving the equity you have from the old house to the new one.
A friend and I were talking this morning about what we would do with our time if we were independently wealthy.
I’m showing my Gen X roots here, but I said that Mr. Roarke from Fantasy Island had the best job ever. My decade younger friend who is still a Gen Xer but considers himself to be a millennial had not seen the show.
I described it has this: People come to Fantasy Island to live out one of their fantasies. Mr. Roarke is the gracious host who makes those dreams happen. Sometimes those dreams can bring harm to people and he has to intervene to protect them. He is always working even when the island guests don’t see him. He predicts what is about to happen and always warns his guests of the outcome, so they have time to adjust their decisions.
My friend replies with “Isn’t that a lot like being a realtor?”
Hahahaha. I guess it really is.
This has given me some ideas for my 2018 Christmas Card.