Housing prices are, as economists say, “sticky downward.” While stock prices can plunge dramatically in a single day, housing prices sometimes take years before they fall enough to restore the balance between supply and demand.
Don’t blame buyers for this. They always adjust quite readily to the new reality of lower housing prices. Sellers, though, are slow to come around. And so we must wait while they gradually whittle their prices down to the new levels.
Here are some reasons you should consider cutting yours right away:1. It’s often best to get out of a falling market as early as possible.
From 1991 to 1996, the median price of a home in California fell from $200,660 to $177,270—or by about 11.6%. In some areas, the drop-off was much more. Smart sellers were quick to lower their prices so they could get out early.2. If you’re in a newer subdivision, there’s a risk that prices could fall much lower.
Many of your neighbors may already be “underwater” in that they owe more than their properties are now worth, and some of them may be facing foreclosure in the near future. A rash of foreclosures in your area could depress property values, since the homes are often resold at bargain prices.3. Those statistics that are showing only modest declines in median sales prices may be misleading.
Many sellers (and builders) have been offering generous incentives and credits to sell their homes. So while the statistics are showing just modest drops in sales prices, the amounts sellers are actually netting have been dropping by quite a bit more.
Median sales prices can also give false readings if higher-end homes are selling better than starter homes. This seems to be the case in many markets. (For some evidence of this, click here
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When this happens, reported drops in median sales prices will tend to understate the extent of the downturn. Indeed, it's even possible for the median sales prices to rise in an area where all home prices are falling.
Here’s an extreme example that shows how this could happen: Suppose that there are just two kinds of properties in the town of Homesville: luxury homes and starter homes. In 2005, 200 luxury homes were sold for $800,000 each and 300 starter homes were sold for $400,000 each. In 2007, 150 luxury homes were sold for $600,000 each and 100 starter homes were sold for $300,000 each. Even though the prices of all homes in Homesville dropped by 25% between 2005 and 2007, the median sales price rose from $400,000 to $600,000.4. It’s a great time to buy.
Your house may have dropped by 15%, but so has your replacement house. If you’re selling in order to trade up, this market may be working in your favor.5. The amount you’re “bleeding” each month may be larger than you think.
Say you have a vacant $500,000 home with a $100,000 mortgage and monthly payments of $1,000 a month. You may think it’s only costing you $1,000 a month to wait for a buyer. Not so. You’re also missing out on an opportunity to earn interest on your $400,000 of equity. If the interest rate is 6%, you’re losing an additional $2,000 a month.6. Those listing agents who keep telling you your price is too low may be giving you bad advice.
Some unethical real estate agents routinely tell FSBO sellers that their prices are too low in order to persuade them to sign a listing contract. This sales practice is known in the trade as “buying a listing.” A month or so after the contract is signed, these agents urge their clients to drop their prices.7. The asking prices of neighboring properties may be giving you an inflated sense of your home’s worth.
In a falling market, many sellers have unrealistic expectations of what their homes are worth. Just because a neighbor with an identical model is asking $600,000 doesn’t mean that your house is worth $600,000.
Listing your property on the Multiple Listing Service (MLS) gets you on Realtor.com, a national website that gets over 6 million visitors per month, and assures buyers’ agents that you will “cooperate” (pay them a commission) if they bring you a buyer who closes escrow.
In the past, you had to list your property with a full-service listing agent in order to get on the MLS, but no more. It’s now possible to get an MLS listing for a low flat fee. Here are the terms you should insist on from your flat-fee broker:
1. An Open Listing or an Exclusive Agency Listing with a cancellation clause
Both of these contracts allow you to find a buyer on your own without paying a commission. You can revoke an Open Listing Agreement at any time. Adding a cancellation clause to an Exclusive Agency Listing also allows you to get out of it whenever you want.
2. A contract signed by the flat-fee broker promising to forward all buyer inquiries to you
The Realtor Associations who manage the MLSs won’t allow sellers’ names and phone numbers to be displayed on Realtor.com or other public websites. Buyers are only allowed to see the flat-fee broker’s contact information. Some flat-fee brokers take advantage of this--when they get inquiries, they offer to show the home to the buyer in order to capture the buyer’s agent’s commission for themselves. Don’t let that happen--it could cost you thousands of dollars.
3. Posting on the proper MLS
Make sure your flat-fee broker promises to put your listing on the appropriate MLS for your county or region. If a broker lists you on an out-of-area MLS, you’ll get very few responses from local buyers’ agents.
4. The ability to rent a SUPRA electronic lockbox
Licensed agents have special keys that allow them to open these lockboxes to get keys to homes that are on the market. Many flat-fee brokers don’t carry these lockboxes, and you can only rent them from the broker who lists your property. If you use a combination lockbox from a hardware store, you'll find yourself repeatedly giving out the combination over the phone without being able to verify that the caller is indeed an agent.
5. Assurance that your listing will appear on secondary MLS real estate websites
Getting on these websites increases your home’s exposure.
6. The ability to make changes to your listing
Flat-fee brokers usually allow this, but some charge a fee for each change. You should be able to request up to five changes without paying a fee.
7. A Comparative Market Analysis
A CMA gives detailed information about comparable homes that have sold in recent months. It can be a useful tool for establishing an asking price.
8. Willingness to post multiple photos
Most flat-fee brokers will NOT post multiple photos on Realtor.com, since doing so is prohibitively expensive. But make sure your MLS broker is willing to post multiple photos on secondary websites. By the way, a trick for getting multiple photos onto Realtor.com is to order a virtual tour package. For less than $200, many virtual tour providers will create an "e-gallery" with a virtual tour and still photos that can be accessed by clicking a “spinning red house” icon on your Realtor.com web page.