Long, long
ago, like a year ago, the Denver real estate market was still a relatively sane
place.
Yes, it was
a hot market. Buyers far outnumbered
sellers. Prices were clearly
rising.
But because
Denver remains a place where very few agents actually KNOW the numbers, our
market has often been moved more by myth and rumor than by factual data. And there’s a lag time to people figuring out
what is actually going on, because there is zero “reporting” in the local
media, just the lazy regurgitation of press releases from real estate companies
and interviews with the same pod of talking-head industry insiders and DU
professors who may or may not have any idea what is actually happening at
street level.
After three
years of solid, consistent recovery, however, we moved into new territory this
spring. Overheat mode. Basically, everything that wasn’t falling
down suddenly had multiple offers.
Hideous homes that had no prayer of selling three years ago went under
contract, often “as is”.
For good homes, multiple offers became an expected norm, appraisal
clauses were waived and buyers agreed to anything short of auctioning off their
children in order to land a desirable piece of real estate.
Even though
the market began its sharp turn three years ago – and you could see it, if you
actually tracked and followed real numbers – because of this lag time between
what I will call “street knowledge” and “mass audience knowledge”, buyers could
still find value.
Many sellers
felt it was still a buyer’s market, even when it wasn’t. Many agents had no idea that they could price
listings $10k, $15k or $25k over the most recent comp and sometimes actually
get it.
So value
lingered, even after the market had clearly moved from a buyer’s market to a
seller’s market.
But that
advantage only lasts so long.
The good
news, in Denver, is that the lag time wasn’t a few days or a few weeks. I would argue it was a year or more before
word fully got out that the buyer’s market had ended and a brave new era of
seller-domination had begun.
Today, I am
sad to report, the seller’s market is no longer a secret. Even the most reclusive, disengaged,
off-the-grid sellers knows buyers are everywhere and nothing is for sale. And that means we have entered an era where
delusional pricing is an increasingly common reality.
What is
delusional pricing? In my mind, it’s any
home listed more than 10% over the most recent comparable sale. If the last sale in your neighborhood of a
model match was $300,000 and you price yours at $315,000, that's defensible. If you price it at $330,000, that’s
delusional.
And
delusional pricing is now everywhere.
It’s not
helped by desperate agents who have no listings and are sick of working with
buyers. Agents who fall into this
category will say anything – anything – to get a listing, even if it’s $25,000 or
$50,000 overpriced.
What these agents know is that either, a) maybe somebody is desperate enough to
waive their appraisal clause and pay the big number, or b) although it may be
uncomfortable and take a few months to beat the seller down on price,
eventually the home will sell.
It’s hard to compete against these tactics, which is what they are.
I always
tell my sellers that advising is my job, but pricing is their job. It is, after all, their home. I will show them comps, give them suggestions
on how to prepare it, help them stage it, professionally photograph it, digitally market
it, proactively engage with agents and buyers, creatively and skillfully negotiate contracts, and fight
like crazy to get the best possible outcome… but pricing it is their call.
Within
reason.
I believe
that in a hot market, time is too valuable to let crazy people take over your
ship. If a home is worth $400,000 and
somebody wants to list it for $425,000, that can be done. Leave room for the market to come to you, but
don’t be crazy.
But if the
same seller wants $475,000, I’m not interested.
Somebody else can take the punishment.
There are enough other motivated people in the market that you don’t
have to hit yourself in the head with a hammer for six months to close a sale,
with a broken relationship and unkept promises as your transactional legacy.
Now every
listing is unique. Just as in life, some
people are reasonable and some people are not.
There are good agents and lousy agents.
There are ethical people and there are people who think taking advantage
of others is part of the game. This is why it's really important to assemble a team of people you trust to help navigate these waters.
As a buyer,
if you find a home that’s priced reasonably and you have faith in the market, then
by all means get in there and swing hard.
Being on the sidelines is costing you money. The median home value in Denver increased by
$74 per day last year, with similar numbers likely this year as well. Every day you continue to rent, you are
paying someone else’s mortgage while your future mortgage becomes more expensive.
For you,
time is money.
But if the pricing
is crazy, you don’t have to play along.
Put a red line through it. Wait
for something else. Be proactive and knock
on some doors. Try another neighborhood.
The problem
with delusional pricing is that it feeds upon itself. When Neighbor Smith sees that Neighbor Jones
listed his $250,000 home for $325,000, Neighbor Smith now believes his home is
worth $325,000.
That’s
wrong. Your home is worth what a ready,
willing and able buyer will pay for it.
Delusional
pricing is like a cancer that gets into the market, spreading false perceptions
of reality and emboldening others to become delusional. That’s one of the maddening themes of 2014,
especially over the past few months.
A list price
is not a sold price, and wishing won’t make it so.
