CALLING OUT THE SELLERS ON THE SIDELINES

Hindsight is always 20/20, and one day soon everyone will have this market figured out and it will be plainly obvious that we were supposed to be buying… I mean selling… I mean digging a bomb shelter in the backyard (hopefully wrong on that last one). 

No one really knows what tomorrow holds, but the one thing you can bank on is that no set of conditions lasts forever.

A few weeks ago, I wrote a very well-reasoned article entitled “Are Sellers Overplaying Their Hand?”.  Of course, since no one is selling right now, I’m guessing no one read it.

But I’ve been thinking about it a lot, because I’m highly frustrated with the number of sellers who do seem to be quite comfortable overplaying their hand, to the detriment of buyers but also quite possibly to themselves. 

As I share with my clients, while I can provide all the data, reports, insight and historical perspective of 19 years in real estate… ultimately, decisions are yours.  And no one wants to sell right now, because prices are going up.

"I’m getting rich by not selling,” people seem to be saying, “so why would I change course now?”

As I said, no one knows what tomorrow holds.  But here’s what I do know.  An awful lot of people with reasons to sell are not selling.  For example, I have a client whose mother died almost a year ago.  She lived in a little ranch home in Denver which she owned free and clear, and rather than rent it out (headache, in the mind of my client), they are just sitting on a vacant home and watching its value go up $2,000 per month or more. 

Easy money.  "Why sell?"

The concept of social proof is an important one to understand.  It’s pretty simple.  People take cues from those around them.  Robert Cialdini has written an amazing book that talks about this called “Influence: The Psychology of Persuasion”.  It’s one of the best books I have ever read and I strongly recommend it.

In real estate, it works like this.  When there are lots of buyers in the market, everyone wants to buy a home.  These new buyers are validated by all of the activity they see, so they follow the herd.

But it works the other way as well.

Right now, inventory remains near an all-time low and sellers are stubbornly refusing to put their homes on the market.  As I referenced earlier, there are people literally holding vacant homes off the market because they feel it’s more profitable to pay property taxes and holding costs on an empty home than it is to sell it in a hot market and potentially miss out on more appreciation.

One day, interest rates will rise.  In fact, last week, rates took their biggest one day jump in six months.  The Fed has announced that it is getting out of the mortgage bond-buying business by the end of the year.  The economy in many parts of the country is doing well, if not flat-out surging (like in Denver).

Wall Street is hanging on every word coming from the Fed, as more and more people think rate hikes have to be coming soon to slow down an economy that truly is performing at a much higher level than two or three years ago.

When rates go up, affordability falls further, and buyers will think longer and harder about whether they really want to pay 20%, 40% or even 50% more than the guy next door is paying for the same house just because the guy next door took action three years ago, when prices and rates were both crazy low.

At that point, whenever it may happen, the market will begin to tip.  And when people start to feel this shift taking place, every vacant house being held off the market will suddenly have a For Sale sign in the yard within about a week.  I have seen this phenomenon before (California, 2005) and it is predictable. 

When will this happen?  I don’t know.  But will it happen?  Yes.

Now I don’t see values crashing.  Not when all buyers have real down payments, real jobs and real credit scores.  But 10% appreciation is not sustainable.  There will be a slowdown, which is why it is so important for buyers to hunt for value, even if it means being extra patient.   

But sellers need to recognize that the wind is at their back, right now.  This is the easiest market to sell a home in since Denver was part of the Territory of Kansas 150 years ago (or something like that).  You want to sell when prices are up, buyers are plentiful, and (most importantly) when there is little or no competition.  

To those sellers sitting on the sidelines, I say… your window of opportunity to sell for top dollar is wide open.  But when it closes, I believe it will close faster than you think, and lots of sellers who have overplayed their hands will be stunned to learn that not every home sells in a week, with multiple offers, over list price.