Reduce and Net Less

Sellers who must reduce their asking price to achieve a successful outcome likely will net less at closing.

Price Reductions

Carefully pricing a home allows sellers to walk away with the most money possible and achieve success quickly.

 For professional track sprinters, getting out of the starting blocks quickly, fast, and first is often the difference in a race. There is plenty of preparation and training to be that runner that is the fastest off the blocks. The initial lunge is crucial and is an advantage that often propels the athlete with the best start across the finish line with arms raised high in the air.

Similarly, when a home initially comes on the market, pricing a home accurately is the difference between a seller raising their arms in celebration within the first few weeks versus taking months to sell and likely for much less. In today’s market, values are slowly declining. The longer a seller takes to properly price their home and secure a successful outcome, the more money they will ultimately lose. 

One of the most crucial steps in being able to sell quickly, open escrow, and obtain the highest possible net proceeds from the sale of a home is to carefully arrive at its Fair Market Value. In every price range, homes sit without success, leaving these sellers wondering what in the world they are doing wrong.

• 39% of all homes in SoCal have been on the market for over two months, and
• 39% have reduced their asking price at least once. Throwing a price out there just to test the market is not a wise strategy.

Instead, carefully, and methodically pricing a home is vital to cashing in on the Golden Opportunity, in the first few weeks after coming on the market. It would be better to spend several hours coming up with an extremely accurate price than to waste weeks or even months of precious market time.

Due to the high-interest rate environment, the market is lining up in favor of buyers during the negotiation process. Buyers do not want to overpay; they are unwilling to stretch. Accurate pricing is fundamental regardless of the temperature of housing, especially in a declining market. Throwing a price out there just to test the market is not a wise strategy.

Ultimately, when asking prices of homes must be reduced in order to secure offers to purchase, it not only takes longer to sell, but sellers also sell for less. On average, the net proceeds check at the close of escrow is less if a price reduction is required. 

Carefully and methodically pricing a home is vital to cashing in on today’s much slower housing market. The first few weeks after coming on the market is absolutely the most crucial time period with the greatest exposure and heightened buyer activity.

This occurs because there are many buyers who have not yet secured a home and are eagerly waiting on the sidelines for something to come on the market that meets their criteria. Every time a home enters the fray, there is a rush of initial activity as potential buyers clamor to be one of the first to see it. There is more activity in the initial two weeks than any other time during the marketing process.

When sellers overprice their homes and do not properly take advantage of the first few weeks after coming on the market, eventually they must improve the price through a reduction.

Reducing the price to be more in line with a home’s Fair Market Value is not met with nearly the same fanfare as a home new to the market. The excitement is no longer there. A home becomes a bit “shop worn” and loses some of its marketing allure the longer it sells without success.

 

 

ACTIVE LISTINGS INVENTORY

• The current active inventory dropped by 2% in the past couple of weeks.

Last year, the inventory was at 7,537, 30% lower, or 3,253 fewer. The 3-year average prior to COVID (2017 to 2019) is 12,672, an extra 1,882 homes, or 17% more. There were more choices back then.

The new trend that developed this year is a sharp decrease in the number of homes coming on the market, homeowners “hunkering down” and not willing to move due to sky-high mortgage rates and being locked in at a low fixed rate.

For the month of October, there were 5,655 new FOR-SALE signs in Los Angeles County, 1,901 fewer than the 3-year average prior to COVID (2017 to 2019), 25% less.

So far in 2022, there have been 12,348 missing signs, down 15%. These missing signs counter any potential rise in the inventory.

 

Demand Dropped by 4% in the past couple of weeks.

Demand, a snapshot of the number of new escrows over the prior month, declined from 3,376 to 3,236 in the past couple of weeks, shedding 140 pending sales, or down 7%. It was the smallest two-week drop since mid-September, indicating that demand has finally caught up to the swiftly rising mortgage rate environment.

Yet, these are the lowest demand readings for this time of year since tracking began in 2012, similar to levels reached during the start of the Great Recession in 2007. Demand has only been lower during the initial pandemic lockdown in April 2020, and January 1st of most years.

According to Mortgage News Daily, mortgage rates have dropped from 7.22% on November 9th to 6.65% today due to the Consumer Price Index (CPI) falling more than expected. That is down by more than one-half of a percent. If inflation continues to fall, rates will fall along with it, and, ultimately, demand will improve as more buyers qualify to purchase. The next CPI reading is in mid-December. For the remainder of the year, expect demand to continue to fall along with the inventory.

Last year, demand was at 6,030, 86% more than today, or an extra 2,794. The 3-year average prior to COVID (2017 to 2019) was at 4,908 pending sales, 52% more than today.

With demand falling faster than the drop in inventory, the Expected Market Time (the number of days to sell all Los Angeles County listings at the current buying pace) increased slightly from 98 to 100 days in the past couple of weeks, its highest level since the end of April 2020, the start of the pandemic.

It was the smallest two-week rise since mid-September. Last year the Expected Market Time was at 37 days, substantially faster than today. The 3-year average prior to COVID was 79 days, faster than today.

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