It is very typical to see new listings priced higher than the comps. If sellers keep adding a little mustard to their list prices, why do buyers keep paying it?
1. Buyers are payment shoppers. With rates this low, the mustard is cheap. If a buyer has to pay an extra $20,000 to beat out other bidders and win a house, it adds less than $100 per month to his payment.
2. Cash buyers have gone nutty. It used to be that cash buyers always drove the hardest bargains, but these days the craziest sales prices are almost always paid by a cash buyer. The money must be coming easier these days with the real estate and stock market run-ups, because it’s being spent willy-nilly.
3. Listing agents expect buyers to just pay their price, whether it is justified or not. Buyers concede due to mounting frustration, and end up surrendering.
4. Buyers are looking forward, not back. If they don’t pay this price for this house, somebody else probably will, and then it ends up being the comp for the next sale. The trend of rising prices makes buyers want to hurry up and get it done now, before it gets any worse.
The result is – or should be – less confidence in the valuations. If you see cash buyers throwing crazy money around, it’s difficult to consider those as legitimate comps. But in a fast-moving environment, logic and common sense get left by the wayside.
Buyers and sellers both can check the validity of comps by researching the neighborhood’s sales history at the last peak, and by factoring in the price reductions, days-on-market, and the buyer’s agent’s sales history.
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