In the last couple of weeks, you may have seen prices on new listings reflecting today’s exuberance.
Homes that are priced attractively will generate the crowds, and likely get bid up over list.
Others are listed for a price that raises an eyebrow. In areas where we’ve seen 10% to 20% appreciation in the last six months, are sellers packing that much on to their list price PLUS another 5% to 10% – or more?
How do you recognize the difference?
The difference between a bidding-war listing, and a seller just daring you to pay their price?
Thoughts for Buyers Wondering If The List Price Is A Dare:
Compare to the Pendings
If you only consider the sold comps from the last six months, you probably won’t buy a house in this market – one which should last at least a couple of more months before there’s any possibility of unsold listings starting to stack up.
Who is the Listing Agent?
Known and successful listing agents aren’t going to list a home for some crazy too-high price. They know it’s better to keep it attractive, and let the market do its thing. If you’ve never heard of the agent and he acts more like a kook from Montaluk, then know that their list price is more likely to be outrageous.
Quiz the Listing Agent
The number of showings doesn’t matter as much – the number of offers does. If there have been 50 showings but only 2-3 offers, it means the price turned off 90% of the buyers. Unfortunately most listing agents are shutting down the showings so fast that it’s hard to get an accurate count – or to get them to fess up.
The Age of the Home
The older the home is, the less likely it’s worth a premium. The floor plans aren’t current and the upgrading over the years is likely to be inconsistent – those will be even more difficult to sell in a normal market. They do tend to be in the better locations, so the home’s age isn’t a hard stop. But typically the older homes are less likely to be worth a big premium today, let alone in the future.
Days On Market
If you’re not sure if the price is right, then wait it out. The initial frenzy dies off quickly, so if you don’t need this house like you need air to breathe, let ride and see if it goes unsold for the first 7-10 days. It’s really the only way to know for sure if the price is wrong.
Stay Picky
Only pay a huge premium if it’s the perfect house for you. There’s a decent chance that appreciation flattens out over the next few years and you end up high & dry for a while. But you don’t care because you’re in it for the long haul, so make sure this home fits ALL your needs. No compromise.
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The market for the best homes has been hyper-competitive for years – it’s only because of the covid/low-rate cocktail that buyers are flooding the streets in numbers we’ve never seen before.
Maybe you should wait it out? Aren’t all sellers daring you to buy now?
You’re just buying homes today at tomorrow’s prices. If prices go up another 10%, and appreciation flattens out and you can score a deal at 10% off, then you’re only back to where you would have been today.
When I was going to USD for my MBA in the late 80’s/early 90’s, I had a real estate class and the professor said, “I’m now going to tell you how to make a ton of money in San Diego real estate!”
Of course, we all leaned in on the edge of our seats to hear this priceless wisdom.
He said, “Buy as much property as you can, as far back in the past as you can”.
There you go! I couldn’t have said it better myself.
It’s all about financial leverage. Where else can you control a $1 million asset for $100k.
All you need to do is make the monthly payment, insurance payments and annual re taxes. Leverage makes people rich. Leverage also makes people bankrupt. It’s all about cash flow and the ability to carry an investment during good times and bad. That’s what I would if I was your professor. I said this in my
MBA class at USC in 1991 as a student and I was laughed at
by the real estate professor. One of us turned out to be right. At the time, I was banker.
You are absolutely correct GGHF! Just before the implosion in ’07/’08, everybody though RE was the golden ticket. You could just do no wrong – in fact, I believe JTR started this blog page just before the implosion, because he could see the proverbial handwriting on the wall.
At the time, I was in management at a large company and among my responsibilities was the warehouse. There was a warehouse worker who went to one of those ubiquitous seminars at the time, and decided to mortgage his house (that was almost paid off), and buy another. He took out another mortgage and bought a third. He did it again and bought a fourth.
When the house of cards came crashing down, he lost them all and was a renter. Your advice to be able to weather a storm is sage.
That said, time cures most real estate investment decisions – again, if you can weather the storms. More real estate cannot be manufactured to meet demand (not talking about houses, but dirt).