Although the market is shifting, that doesn't mean that the sky is falling. Listing agents should focus on training their sellers to understand the new realities instead of blindly reacting and giving away the farm in the process.

My college history professor was renowned for a statement he would make to every new class: “The only thing we learn from history,” he would intone, “is that we don’t learn from history.”

Put another way, we tend to have very short memories and seldom seem to remember lessons we garnered from experiences as few as 15 years ago.

With this in mind, I was surprised this past week to see several emails hitting my inbox for listings that had been on the market for a relatively short period. A few were boasting increased commissions for the buyer’s agent, another was touting an available $35,000 credit for closing costs while a slew announced price “refinements,” “improvements” or “enhancements.”

While I understand the need to be as proactive as possible, I was a bit concerned that we were seeing such a quick return to tactics that were historically reserved for markets where homes typically stay on the market for months, not just mere days or a few short weeks.

A bit of history might be helpful. (Statistics from Alameda County, California provided by TrendGraphix.com.)

The second quarter of 2009 saw the average days-on-market (DOM) in Alameda County, California at 55 days. During this period, homes sold for an average of 94 percent of their list price. Since then, DOM numbers have been steadily dropping. The average same-quarter DOM in 2012 was 42 with 2015 coming in at 21.

By 2018, the average DOM had dropped to 16 days and homes were selling an average of 9 percent over the list price. The same period in 2021 saw DOM down to 11 days with homes selling 16 percent over asking. So far in 2022, the DOM remained at 11 days through the end of May, but the list price/sales price ratio bumped up to about 21 percent.

Even though the market shift hit the Alameda County market in mid-May with market activity screeching to a near halt, the numbers for the month overall remained strong.

While the data for Alameda County, California might not match other counties across the nation, I guess that the overall trends are similar. When any trend continues in one direction for a prolonged period, people begin assuming it will continue forever. In this case, the continued steady decline in DOM numbers led sellers to expect that the numbers would always get lower.

In the real world, however, they fluctuate up and down and, if we were paying attention to history, we would know that everything that comes down eventually goes back up and vice versa. If nothing else, the current increase in interest rates should serve as an example of this reality.

Consequently, because sellers have grown accustomed to being able to sell just about any home in a few short days with multiple offers, the fact that, in this new shifting market, no offers are coming in after a week is sending sellers into a state of alarm.

Truth is, even with increased interest rates and an overall slowdown in the market, the average DOM in Alameda County from mid-May to mid-June has only risen to 15 days. That is a mere four days over the numbers from the beginning of this year and we are continuing to see strong offers, many of which are still over the asking price.

As a result of the additional time now required to sell homes and the corresponding seller panic, we are seeing a return to tactics that were historically reserved for homes on the market over 30 days. Sellers are slashing prices mere days after hitting the market, buyer agent commissions are being raised, credits for closing costs are being bandied about, and offers to buy down buyer’s interest rates are making the rounds.

Again, I understand the necessity of listing agents doing everything in their power to get a sale in a decent amount of time. Truth is, however, even with the current slowdown, homes that are properly prepared and priced correctly are typically selling within 14 days without any gimmicks.

With this in mind, I would like to suggest that listing agents focus on training their sellers to understand the new realities instead of blindly reacting and giving away the farm in the process. Here are my five recommendations:

Help sellers understand the sky is not falling.

We are not headed for a crash, we are not going to see collapsing prices, we are not going to see interest rates hike over 10 percent in the immediate future, and so on. In many ways, the economy is still strong, we are still facing an inventory shortage and there are still plenty of buyers out there with the ability to buy even given the new interest rates. It will just take a bit longer.

Educate in the new reality.

We are explaining to our sellers that we operate with integrity and will not “understate” the new market realities to get a listing. We then explain that they are probably not going to see multiple offers, offers within the first few days, prices way over asking, and so on.

During our meetings, we provide them with solid data to help them understand the new realities. If we encounter sellers that want to “test the market” or some other crazy idea, we refer them to others.

Case in point; we recently had a listing appointment where a seller, refusing to embrace the new market realities, demanded an unrealistically high price, wanted us to pay for painting and preparing their home, and was only willing to go on the market for 45 days, was unwilling to pay a normal commission and insisted that if they did not get their price within that time, they would rent their house out instead. We respectfully declined.

Property preparation is still critical.

In an overheated seller’s market, it is not uncommon to see huge returns on investments that were made to prepare the home for sale. In a shifting market, the margins get much tighter; instead of getting multiple dollars back for every dollar spent, you may just break even but will score a sale. With multiple offers out of the way, buyers can afford to get picky and will go after the nicer homes first.

Price is the most critical component.

Rather than provide huge closing cost credits or other financial incentives, just get the price dialed in correctly from the beginning. Sellers tend to forget that buyers prefer a lower price over incentives because they end up paying more property taxes on a higher-priced home.

Sellers need to understand that homes must always be priced ahead of the market. If the market is going down, that means their price must be lower than previous sales.

Use incentives only if other methods fail.

If normal tactics fail after a reasonable period, then it is OK to introduce incentives. Do so too soon and you give away your client’s money unnecessarily. Suggestions would include price reductions, credits for closing costs, seller carryback financing of some kind, or buying down the buyer’s interest rate.

In my opinion, the one option that should not be necessary is increasing the buyer agent commission or providing buyer agent bonuses. First, buyers typically no longer rely on agents to find properties for them, and therefore offering a higher compensation should be moot. If one agent refuses to work with a buyer on a home with a lower commission, most buyers will simply find another agent who will.

Secondly, buyer agents should be providing stellar service regardless of the compensation offered.

Ironically, since we have been in a seller’s market for an unprecedented period, agents who have been licensed 10 years or less do not have the historical context to help them navigate the emerging market more successfully. We recommend collaborating with agents who have been through previous shifts and can provide context.

At the end of the day, even with the shift, the basics still prevail: Work with sellers to ensure the property sparkles and dial in an effective and realistic list price from the very beginning. We know from history that those two things work very well.

By Carl Medford

Source: https://www.inman.com/2022

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