Orange County Housing Report: Dangers of Overpricing

Hello! Below my signature line is the latest edition of the Steven Thomas Orange County Housing Report, which is always a great read for staying apprised of the happenings in the real estate market! Steven highlights the following:

Although it is a “HOT Sellers’ Market”, pricing at “Fair Market Value” remains important. Why?…

  • Buyers are real estate savvy, having copious amounts of information at their fingertips! Yes, they are racing to buy homes and are willing to compete for the homes that are priced right. Overpriced listings go on their “wait and see” list for the pricing to become realistic based on their assessment. The longer a home is on the market, the greater the chance of not getting “Fair Market Value”, since the Buyers are racing after the next “new listing” and have lost interest in the “wait and see” list. Steven Thomas provides excellent examples of these situations in the report below!
  • The appraisal is another key consideration. Since most Buyers are securing financing for their homes, the appraisal is a key factor to a successful closing. The appraiser will assess the properties which are “Under Contract” and the “Closed” sales over the last three months for determining their appraisal value. Being mindful of this consideration when establishing the listing price for your home, it is important!

As we look forward to the end of the year and entering 2021, your real estate endeavors may be an important consideration…Are you staying in CA or heading to a new State? Is the size of your home right for your enjoyment over the next 10-20 years, or is it time to go bigger or smaller? With the low, low interest rates, the months ahead may bring exciting changes for you related to your home and investments. Let’s get together to talk through a game plan. Then, when the time is right, we will hit the ground running together in anticipation of great success. I look forward to it!

In initially coming on the market, sellers who do not accurately price their homes will likely net less at the closing table.

A key factor in selling a home quickly and for top dollar is to avoid price reductions.

A house is not just a building with rooms; it is a home where so many memories are made. It is where a baby takes its first steps, kids learn to ride their bikes, and numerous birthday celebrations and family gatherings occur. A home is where life transpires and is a special piece of a family’s history. A home is emotional, more than just a dwelling.

In pricing a home, many sellers have an extremely difficulty time pulling the emotion out of the equation. After all, it is worth so much more in factoring in the memories. Unfortunately, when it comes to selling a home, none of this factors into the price.

Ultimately, when a home initially comes on the market, the price will determine a seller’s success. One of the most crucial steps in being able to sell quickly, open escrow, and obtain the highest possible net proceeds from the sell of a home is to carefully arrive at its Fair Market Value. Yes, the current market is a sizzling Hot Seller’s Market where homeowners are obtaining multiple offers that are remarkably close to their asking prices. In many cases, they are even able to get more than the asking price. Yet, in every price range, homes sit without success, leaving these sellers wondering what in the world they are doing wrong. 33% of all homes in Orange County have been on the market for over two months.

Despite the hot market, buyers really do not want to pay much more than the most recent closed sale. Given that there is a shortage of homes on the market and that demand is exceptionally strong, buyers are willing to stretch a little bit, but not a lot. Accurate pricing is still fundamental regardless of the temperature of housing. Throwing a price out there just to test the market is not a wise strategy. Ultimately, when the asking prices of homes must be reduced in order to secure offers to purchase, it not only takes longer to sell, sellers sell for less. The net proceeds check at the close of escrow is less if a price reduction is required.

It is very telling to look at the sales price to last list price ratio. This refers to the final list price prior to opening escrow. These are averages, meaning there are exceptions, but the overall trend is stunning. In Orange County, 76% of all closed sales in August did not reduce the asking price at all. The sales price to last list price ratio for these homes was 99.6%, meaning, on average, a home sold within 0.4% of the asking price. A home listed at $700,000 sold for $697,200. In addition, 15% of all closed sales reduced their asking prices between 1% and 4%. The sales to last list price ratio for these homes was 97.8%, and, on average, it took 65 days to open up escrow. A home listed at $700,000 sold for $684,600, $12,600 less than homeowners with no reduction. For homes that reduced their asking prices by 5% or more, 9% of closed sales in August, the sales to last list price ratio was 94.7%, after being on the market for months. A home listed at $700,000 sold for $662,900. Everybody would agree that closing at $697,200 is a whole lot better than $662,900.