The Slow Unwind – The Pricing Gap

by Jim the Realtor | May 18, 2022 | 2022, Frenzy, Sales and Price Check, Slow Unwind | 4 comments

The new market conditions will bear some resemblance to the past, but to believe that real estate sales will be ‘getting back to normal’ some day would be full of false hope.  Rob Dawg said it long ago – we need to abandon all previous assumptions.

Let’s start with the two things most likely to change:

1. Buyers are going to stop paying over the list price.
2. Buyers are going to stop making offers the minute a house hits the market.

The frenzy conditions that sellers have enjoyed over the last two years will now be in question, and take some finesse to navigate. If buyers are reluctant to pay over the list price, it means that they may even want to pay less than the list price. Then for some listings, there might not be any buyers – at least none willing to pay close to list.

What’s worse is that buyers and their agents won’t be comfortable making low offers, so they just won’t offer at all. Sellers who get no offers will only know that their price is wrong – they won’t know how wrong. Plus, they might not even get any showings, let alone offers.

What variables will make the difference between selling, and not selling?

Comps aren’t going to matter much. Just because there are high sales nearby doesn’t mean that tomorrow’s sellers are going to automatically get the same money or more – especially if the new listing has a defect or unusual feature.

The differences between schools is getting fuzzy.  We have become a little too reliant on the online school reviews, and there are going to be parents who spread negative stuff around – and unfortunately, there might be some truth to it.  No school is perfect, and the best education is a good upbringing at home.  If that’s the case, then why pay larger-than-ever premiums to be in the ‘best’ school district?  Some buyers will be attracted to the better home values further out in the suburbs.

Work-From-Home is here to stay. If you WFH and already considering private schools or taking a chance on the lesser-known public schools, then the need to pay a big premium to be closer to downtown won’t be as urgent and the outskirts will benefit. Plus, there is a new car-pool lane on the I-5! The homes that have multiple spaces to accommodate the work-from-home buyers will benefit.

The easy cure for higher prices & rates is buying a smaller house. Before buyers think about sacrificing on location, they will consider buying a smaller home – and most people can find a way to live with 3,000sf to 4,000sf. As a result, the big bombers aren’t going to get the same $/sf for square footage over 4,000sf unless they have larger yards with a pool. It means we should see 4,500sf and 5,500sf homes selling for about the same price – which is different than it’s been.

Smaller yards should get penalized. While a smaller house might work, those with tiny yards won’t be as appealing post-frenzy.  At these prices, buyers will be reluctant to compromise on the most-important stuff, and having a decent yard is high on the list.

The homes that have everything going for them should continue to be popular and sell for a premium.

The rest? The price gap between the dogs and the creampuffs should widen, and market times extend dramatically as sellers and agents will be slow to react.

Sellers will be smart to spruce up their home more than they had planned, make sure their price is attractive, and hire a great realtor!

Get Good Help!