The inventories of homes for sale in many areas of the country have increased, in some cases, dramatically. For example, according to the National Association of Realtors (NAR), the inventory of homes for sale in the Chicago metropolitan area increased 133 percent from the third quarter 2004 to the third quarter 2005.
A year ago, when inventories were extremely low, accurate pricing was less critical. As long as you received broad marketing exposure, you were virtually assured of a sale even if your list price wasn’t precisely in sync with the market. Now, because of rising inventories, there’s no margin.
Although the trend nationally seems to be toward an increase in the number of homes for sale, this isn’t universally the case. According to NAR, listing inventories in Austin, Texas, dropped 33 percent between the third quarters of 2004 and 2005. They went down 27 percent in Colorado Springs, Colo., during the same period.
Although the media broadly proclaims a drop in the housing market, there’s actually variability in the market depending on where you are and what you have to sell. For instance, there’s evidence that the condo market is softening more than the single-family market.
Given the unevenness in housing activity, which is ultimately governed by supply and demand, it’s difficult to generalize about the best way to price your home in order to ensure a successful sale. However, the following guidelines will help you chart your course.
HOME SELLER TIP: Broader economic factors like interest rates have an effect on the housing market. But, it’s usually local economic factors–like the local job market and the amount of new construction in the area–that have the greatest influence on sale prices in your area. For example, Seattle currently has a strong economy. So it’s no surprise to find that despite growing inventories of homes for sale elsewhere, it’s a seller’s market in Seattle.
In such a market, where there are still more buyers than there are sellers, you’ll want to adopt a different pricing strategy than you’d use in a market that’s bloated with inventory. You might price your home at the low end of the expected selling price range and expose it fully to the market before entertaining offers. This way, you have the opportunity of receiving multiple offers and a higher selling price.
But in markets with a surplus of inventory, you’re unlikely to receive multiple offers. Buyers have more to choose from and they don’t want to compete with other buyers. They become more selective and gravitate to those listings that are in the best condition and are offered at the best price.
It’s always a good idea to know your competition. However, in a high-inventory market, don’t be misled by other seller’s asking prices. Some sellers are choosing to list their home assuming they’re still earning double-digit appreciation. If you see a list price that is significantly above recent sale prices, it’s probably too high.
Also consider that there are a lot of speculative sellers in the market who will only sell if they get a certain price. They don’t need to sell; they’d like to if they can make a killing.
Another factor that may have an effect on the market is that about 30 percent of the real estate agents currently in the business have only had experience working in a strong seller’s market. It may take time for them to realize that the market has changed and requires new ground rules.
THE CLOSING: In order to sell in a high-inventory market, you need to prepare you home for sale so that it looks great, and select a price that undercuts your competition.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers,” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.