Monday, April 17, 2006

Market affects home pricing

In many areas of the country, inventories of homes for sale have increased -- in some cases, dramatically. The National Association of Realtors reported the inventory of homes for sale in the Chicago metropolitan area, to cite one example, increased 133 percent from third quarter 2004 to third quarter 2005.
A year ago, when inventories were extremely low, accurate pricing was less critical.

As long as the home received broad marketing exposure, it was virtually assured of selling even if the list price wasn't precisely in sync with the market. Now, because of rising inventories, there's no margin.
Although the trend nationally seems to be toward an increase in the number of homes for sale, this isn't universally the case.
Listing inventories in Austin, Texas, according to the Realtors, dropped 33 percent between the third quarters of 2004 and 2005. They went down 27 percent in Colorado Springs, Colo., during the same period.
Although the media broadly proclaims a drop in the housing market, there's actually variability in the market location and product type.
For instance, there's evidence that the condo market is softening more than the single-family market.
Given the unevenness in housing activity, which is ultimately governed by supply and demand, it's difficult to generalize about the best way to price a home to ensure a successful sale.
However, the following guidelines may help.
Home seller tip: Broader economic factors such as interest rates have an effect on the housing market, but it's usually local economic factors such as the local job market and the amount of new construction in the area that have the greatest influence on sale prices.
Seattle, for example, has a strong economy, so it's no surprise to find that despite growing inventories of homes for sale elsewhere, it's a seller's market in Seattle.
In such a market, where there are still more buyers than sellers, the pricing strategy will vary greatly from one in a more bloated market. You might price your home at the low end of the expected selling price range and expose it fully to the market before entertaining offers. This way, there is the opportunity of receiving multiple offers and a higher selling price.
In markets with a surplus of inventory, however, it's unlikely to receive multiple offers. Buyers have more options and they don't want to compete with other buyers. They become more selective and gravitate to those listings that are in the best condition and are offered at the best price.
It's always a good idea to know the competition. However, in a high-inventory market, don't be misled by other sellers' asking prices. Some sellers list their home assuming they're still earning double-digit appreciation. A list price that is significantly above recent sale prices is probably too high.
Also consider that there are a lot of speculative sellers who will only sell if they get a certain price. They don't need to sell; they'd like to do so only if they can make a killing.
Another factor that may have an effect on the market is that about 30 percent of the real estate agents have only had experience working in a strong seller's market. It may take time for them to realize that the market has changed and requires new ground rules.
The closing: To sell in a high-inventory market, the homeowner needs to prepare the home so that it looks great, then select a price that undercuts the competition.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide" by Chronicle Books. Copyright 2006 Dian Hymer. Distributed by Inman News.
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