Unrealistic Expectations of Buyers and Sellers

Buyers and sellers have been known to have unrealistic expectations in images (1)approaching the housing market and they say the funniest things.


Foolish Talk: Buyers and sellers who buy into some foolish thinking will not find success in today’s Orange County real estate market.


Real estate professionals from all corners of Orange County have provided plenty of feedback as to what buyers and sellers have been saying as they approach the 2014 housing market. If you have not been paying close attention, this year has been plagued by the overpriced seller and the jittery home buyer. Here’s a short list of the top foolish things that buyers and sellers are saying today:


  • SELLER: “We need to net $XX,XXX from our home.” There is not a single buyer who cares to know what a seller wants to net from the sale of their home. Buyers are not asking their REALTORS®, “How much do the sellers need to walk away with from the sale in order to be satisfied?” On the contrary, buyers are doing their homework and pouring over comparable sales to arrive at a fair price. A smarter approach for sellers is to look at the true fair market value for their home and determine the net proceeds based upon that value. If a seller determines it is not enough, they should NOT sell their home. This is not a market for testing the water; instead, they will be just wasting their time. Pricing a home based upon the fair market value is crucial to be successful today.
  • BUYER: “Everybody has been wrong about interest rates and they are not going to rise.” Interest rates have remained low throughout 2014 and are not expected to rise in the short term. Despite so many housing experts forecasting higher interest rates, it has yet to materialize. As a result, buyers feel that since the experts have been wrong over and over again in regards to rates, then they will remain low for a very long time. However, interest rates have to rise for simple fundamental economic reasons. There’s a 100% chance that they will rise. The government has dumped so much money into the U.S. monetary system to jump start the economy and housing, basically printing money that eventually rates will rise as inflationary pressures build.  Raising interest rates is the main way to fight inflation. It is not a matter of “if” rates will increase; it is “when”. When will that happen? Nobody knows. But, waiting until that occurs is a foolish proposition; instead, buyers should take advantage of these historically low rates. In 5 years from now, they will look back and know that buying while rates were low was nothing short of genius. Prior to the downturn, interest rates were above 6%. Since then they have been artificially reduced through the actions of the Federal Reserve. When rates increase from 4.125%, where they are today, to the level prior to the downturn, buyers will be looking at paying an extra $700 per month for the median sales price.
  • SELLER: “We need to leave a little extra room for negotiations.” Why in the world are sellers leaving room for negotiations? In adopting this strategy, sellers are overpricing their homes and wasting valuable market time. Overpriced listings don’t sell today. These homes sit on the market and miss the opportunity to cash in on the first few weeks of selling. That’s when a new listing obtains the most showings and most exposure. Today, buyers are very sensitive to price and they do not want to overpay. The best approach for sellers is to price according to the fair market value and hold firm to that value.
  • BUYER: “We are nervous about buying right now and it could be a buyer’s market soon.” With an expected market time of just over 3 months, the current market is not even close to a buyer’s market. This is more wishful thinking on behalf of buyers and is unsupported by the facts and housing data. 2014 is very different from 2012 and 2013 when homes were flying off the market at just about any price. Just because prices are not skyrocketing out of control does not mean that the market has shifted to a buyer’s market. However, the market is moving more towards a normal, balanced market where neither buyers nor sellers will be able to call the shots. Today, it is a seller’s market with very little appreciation. That means that homes will sell close to the most recent comparable closed sales and sellers will be able to control the terms.
  • SELLER: “We feel like we left money on the table and could have got more.” This is crazy talk! Sellers are coming to this conclusion because they actually have to negotiate today. They are recalling the last two years when they heard how homes were flying off the market in just days and sellers were obtaining prices above their asking price. While a seller negotiates with a buyer, they should keep in mind what homes were selling for one or two years ago. Yes, they were selling like hotcakes, but they were selling for far less. Instead, sellers should be counting their blessings at the values that they are able to obtain, the highest in seven years.
  • SELLER: “We are going to wait until the Spring to sell.” Just about everybody is fooled into thinking that they need to sell in the Spring in order to secure a higher sales price. That logic means that sellers will be selling at a discount during the Autumn and Holiday Markets. Sellers are not even remotely thinking about discounting their homes in the coming months. Many sellers will be throwing in the towel with both the Spring and Summer Markets in the rearview mirror. Activity will slow, but so will the number of sellers that remain on the market. There won’t be as much new competition either. On the contrary, during the Spring Market there will be a lot more new sellers entering the fray, just as there will be more buyers looking to buy. A few years ago, I tried to show with numbers that the Spring Market was the best time of the year to sell, but the data just did not support the hypotheses. Instead, there seems to be a balance. When there are fewer homes coming on the market, there are fewer buyers as well. When there are more sellers, there are a lot more buyers. The bottom line: homes are not appreciating right now, so waiting until the spring will prove to be fruitless.