From the Record:
Sellers urged to set lower prices
Realtors often warn sellers about the danger of overpricing a house. Now they have evidence to show skeptical clients: research by Jeffrey Otteau, an East Brunswick appraiser.
He found that in a market where prices are declining, sellers who “test the market” with a high price usually end up with a lower price than those who price realistically.
“Houses that are priced right are selling,” said Otteau, who shared his results with real estate professionals this week at an East Hanover seminar. “Overpricing extends days on the market and guarantees that you will sell your home for less in a declining market.”
Otteau also said that by his measure, house prices in New Jersey will fall about 7 percent this year, after dropping 8 percent last year. He predicted prices will decline about 4 percent next year, and will not begin to rise again until 2011 — and in that year, will rise only 3 percent.
Otteau, of Otteau Valuation Group Inc., studied about 4,500 home sales that took place in the first half of 2007, largely in northern and central New Jersey. Most of the houses were priced between $500,000 and $750,000.
He looked at houses that sold in less than a month, and found that they had a median asking price of $599,900 and sold for almost full price — a median of $599,000. When he looked at houses that lingered on the market for more than a month, however, he found that they were priced higher — at a median of $634,900 — but actually sold for less, a median of $585,000. The median is the point at which half the sale prices are above and half below.
“Everything’s a function of price,” Otteau said.
With a high price, the house stays on the market as buyers ignore it in favor of lower-priced competitors. And in an environment of falling prices, a house that sells three months from now is going to command a lower price than one that sells today.
Otteau said that pricing a house a little below the competition not only catches buyers’ interest — it also reassures them that they won’t kick themselves later for overpaying if, as expected, home prices drift lower in 2008.
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“You can’t just try for a higher price because you really want it,” he said. “The way to get a higher price is to create a sense of urgency by setting a lower price.”
Lets see – the market is decreasing as a function of time. Pricing out of the market will increase the amount of time the property is on the market. This will lead to more time elapsed to sale and therefore more of a decrease.
Did this really require ten paragraphs, or are sellers still that clueless?
Chong
Sellers tend to lack a forward-looking mentality. It’s their home and it’s worth more than all of their neighbors’ is the usual thought process. Some current sellers are looking for 2005/2006 sale prices + some. I have watched asking prices on overpriced homes in Union County decline and chase the market down with little success. There is a major lag here between market perception and reality and I think if you read beween the lines, that’s Otteau’s point.
Things in my neighborhood in Chatham have been coming on and sitting. Neighbors of mine on Van Houten in Chatham Township refuse to believe the market is bad here in town. They have their heads in the sand and state it may be that way everywhere else but not here in Chatham. Owners refuse to believe that their house has dropped by 20-30% from 2005. It is based in reality as I think comps in the pricing will reflect those 1.2-1.35 million dolar houses selling for $800-900K.
I work in a bank and people who paid over a million in the past few years cant even get $100K home equity loan as they are no longer in equity with the decline in the market. Owners get mad at the appraisers who now tell them their house is worth alot less than they paid. The owners state “but its Chatham”, as if that is enough for our bank to take on the risk.
Now my bank was as bad as others in writing loans with loosened lending standard. the correction has come and I would guess that 75% of the people who want a million dollar home cant get approved with the 10% down that others got a few years ago.
Lots of “Price reduced” and “New Price” signs all over the place in Rutherford.