Inverted Mindset for Buyers.
There’s an interesting shift taking place today in the minds of realistic home buyers who are shopping in this heated real estate market. Back when the market was much more balanced (um, 199….?), if a buyer said that the absolute cap on their budget was $1,000,000, it made sense to set their search criteria a little bit higher, and for them to look at houses up to $1,050,000 — or about 5% above their budget cap. Why?
Two reasons — first, back when homes weren’t flying off the market at a double-digit increases over list price, you could actually negotiate the price of the home with the seller. Go figure! So that $1,050,000 house could quite possibly be had for $1M, especially if it had been on the market for a few weeks. The second reason is that rarely is there ever an “absolute” cap to a buyer’s budget. More often than not, if a buyer finds a home that they absolutely love but is about 5% (or less) above their stated cap, they almost always miraculously find a way to come up with the extra scratch to make it happen. And they’re thrilled to do so, because they got the house they really wanted.
Not so in today’s market.
Anyone watching today’s market closely knows that just about everything is fetching at least 5% over asking price, sometimes much more. Taking last week in San Carlos as an example, of the 9 single-family homes that closed escrow, a full 2/3 of them sold in a range of 6%-23% over the list price. And these were for contracts that were locked up 30 days ago. As the market gets hotter, those numbers are continuing to rise with the temperature.
This phenomenon is forcing buyers to lower the aim of the house they’re looking for. Instead of looking 5% above their budget cap, they’re now looking 5% (or more) below their cap. In other words, those very same $1,000,000 buyers are discounting the chances of getting anything listed over $950,000 because the probability is very high that it will get bid well beyond their limit.
It’s a delicate balancing act. On one hand, you don’t want to risk not bidding on a house only to find that it didn’t get bid into the stratosphere like you thought it would. On the other hand, it’s emotionally draining to keep writing offers on homes that you have no chance in getting. That’s a big reason why you see some buyers sitting out this market now. They’re just wiped out. But it doesn’t need to be that way.
Know Thy Market.
It’s a theme that I constantly preach on this site. Knowing the local market (and working with an agent who knows the local market) can help you make informed decisions on when to strike, and when to save your bullets for a different battle. I’ll be the first to admit that pricing a home for sale is an inexact science. It involves just as much looking at historical datapoints as it does gazing into a crystal ball. Despite the best efforts, it just doesn’t always come out right. And when you mix in those intentionally under-priced listings, it makes it really difficult for a buyer to differentiate a real buying opportunity from just a pipe dream.
Intimate market knowledge is like the sense of smell for a bloodhound. It enables you to intelligently sniff your way through what is a very tricky and treacherous market for buyers right now. And the more you know about the market, the better you can predict where the chips are going to fall.
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