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After receiving an offer last night 25% below the asking price on a current listing we have on the market, it occurred to me that many buyers – and apparently some less than savvy agents! – do not fully understand the housing market.  This may not be the most interesting of topics (I’ll do my best to liven it up as best I can though!), but it’s one that is really important.

Success as either a buyer or a seller is hugely impacted by the supply of available homes on the market.   It really is the simple concept of supply and demand and I think a few well-spent minutes to embrace what that means, will allow you to make smarter moves than the agent (and buyer) who offered $650k for a $825k home.  Trust me – my response was much more, well…let’s say, “refined”, than the words coming out of the seller’s (and my husband’s which was 2 words and you can imagine what those were!) mouth!  He was none too pleased!

So what IS a Buyer’s Market, a Seller’s Market or a Neutral Market?  What kind of market are YOU in?  How do you even find out?  It begins with inventory – or put another way, the number of properties currently on the market by type (single family homes, condos/town homes, etc.) and a breakdown of those types by price.  Let’s first start with a Neutral Market.

Similar to going into a bar where there is one to one perfect fit for everybody there, a Neutral Market is generally considered a 6 month supply of properties.  It is never stagnant (meaning new homes come and go all the time), but let’s say an area sells 5 properties every month and for the sake of understanding this concept, let’s pretend it is stagnant.  A 6 month supply would then mean there are 30 homes currently on the market and if 5 sell each month, they would all be gone in 6 months.  Never mind style of the home, condition or even the price or whether you even like or can afford any of those 30.  That’s a whole other set of challenges for buyers and sellers.

However, let’s say the market surges and all of a sudden, sales average 10 a month instead of 5.  The supply would all be gone in 3 months!  Meaning, a seller holds the power as there are more people wanting homes than there are on the market.  Those sellers are probably going to get more money for their home and will not need to make concessions to the buyer for repairs, closing costs, warranties, loan types, etc.  The seller’s market is a supply in excess of 6 months.

Heaven forbid, the market tanks and we’re now averaging only 2 sales every month.  The supply went from 3 months to 15 months (30 divided by 2).  The buyers now hold the power and sellers really needing and wanting to sell will do just about anything to get their home sold…closing costs, warranties, first born children, their gay son, a new puppy…

To further complicate the scenario, an area like Palm Springs can have buyer’s markets, seller’s markets AND neutral markets depending on the area and the price!  For example, in the $300-400k range (seller’s market), the inventory is less than 4 months, but for homes in excess of $1M, it’s nearly 15 months (buyer’s market) and the $700-800k range is 6 months (neutral).

Again, we haven’t even discussed property condition or location!  Let’s say 12 of those 30 homes are beyond your price point leaving only 18 you can afford.  Of those 18, you like mid-century modern and 10 are either bungalows or Spanish, which now leaves you only 8.  Of those 8,  3 don’t have pools (a must for you!), 2 have second stories (you want a ranch) and 1 has an HOA (and you absolutely insist no HOA).  That leaves you 2 homes.  Do you want this one or do you want that one?

So, when we received an offer last evening for roughly 75% of the asking price for a nicely maintained, mid-century, pool home in a desirable – and market neutral – area, you can understand why the seller told the buyer to take a flying leap (Well, actually, that fell on my shoulders, but you get the drift!) and the agent looked the fool for not doing their homework.

Does an agent matter?  You bet they do.  There is more to Real Estate than buyers and sellers looking at pretty houses.  When it comes to the largest investment most of us ever make, having someone who has their finger on the pulse and understands their local market is invaluable.  Just ask the buyers who’s offer is NOT in escrow today.  As Maya Angelou said, “When you know better, you do better.”  Now you know and whew…it’s cocktail time!

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