The 2016 housing market is the hottest in a decade. Yes, home sales and prices are up, but not as much as all the hype has led many to believe.
The average home price in Massachusetts for the first six months of this year is up 3 percent over the same time frame in 2015, and contrary to what people think, not every home is sparking a bidding war or selling for over the asking price. To illustrate this, I looked at nine communities, selecting ones from all over Eastern Massachusetts, and the average number of homes that sold over the asking price is only 40 percent. The numbers are higher the closer you get to Boston, of course, and lower as you head outside the Interstate 495 belt.
Owners take pride in the place where they have lived for many years, renovated, raised their children, or all of the above. That said, it is natural to become emotional, even defensive, during negotiations. Those emotions coupled with all of the hype can cause sellers to make mistakes that end up costing them money. One of the most common ones is being too quick to reject a bid without even making a reasonable counteroffer.
How it happens
Sellers list a home for $500,000 on a Thursday. Everyone they know, from family to friends to neighbors, tells them: “Wow, you’re listing it for only that much? Your home is definitely worth more.” These reactions cause sellers to second-guess themselves and their agent.
The agent schedules four private showings between Friday and Sunday. On Monday, the sellers receive an offer — $20,000 below asking. Instead of feeling excited and making a counteroffer, the agitated sellers decline altogether. Their agent tries to persuade them to counter and keep the prospective buyers engaged, but the sellers refuse and say, “We don’t have to sell.” These are the famous last words of so many sellers.
The buyers receive word that the sellers won’t even counter, so, offended, they move on. Tuesday and Wednesday come and go with no other private showings scheduled. Then Thursday comes, and buyers ask to see the home that Saturday. The sellers get excited, thinking maybe these are the folks who will offer the asking price or more. No. They thought it was overpriced. The sellers cannot believe it. Another week goes by with one unsuccessful showing. Then a week with no showings at all.
Disappointed, the sellers wonder whether their realtor is doing enough. The agent suggests they drop the price, but they refuse. Another week with no takers passes, so they relent and drop it to $475,000. Within hours they receive five showing requests. Within three days they accept an offer for $470,000. They realize that their decision to deny that first offer cost them $10,000, but they don’t understand why it happened.
Why buyers pay more
Almost all homes sell within 21 days of being listed or after a price adjustment. Once that time period passes, it becomes harder to sell and, if you do, it’s nearly impossible to get anywhere near the asking price. Here’s why. If you were a buyer and went to look at a home that has been on the market for 30 days, would you walk in and say, “No one else has bought this, but I want to pay full price right now”? When a home is first listed, and many buyers are going to see it, there is a sense of competition, and they are willing to pay more. Real estate is an emotional game; humans always want two things: what others have and what others want.
If you’re listing your home for sale this fall, be careful not to get caught up in the hype. Remember that selling a home is really a business transaction. It is best to price your home more aggressively so that you attract an abundance of home buyers who end up competing for the home. Motivated sellers attract motivated buyers. And if you do receive an offer in the first week that is less than you hoped, think twice before denying it. There is always room to negotiate.