Monday, June 08, 2009

Slashing home prices...

Found an article from the Las Vegas newspaper that appeared in the June 6th edition that covered the subject of price reductions for listings in the Las Vegas (Nevada) market. Read the whole thing here.

From the article...

The average listed home price was reduced 10.6 percent nationwide, with larger drops coming in areas hardest hit by foreclosures such as Detroit, Las Vegas and Miami, a San Francisco-based real estate search firm reported Friday.

That's encouraging news for prospective buyers as $27.4 billion was slashed from the price of homes for sale across America, including $156 million in Las Vegas, said Ken Shuman, spokesman for Trulia Inc., a San Francisco-based real estate search engine company.

Las Vegas ranks second to Detroit with a 16 percent listing price reduction, from an average of $330,870 to $276,780. List prices in Detroit were cut 23 percent to $62,110, Trulia reported.

Thirty percent of all property listings in Las Vegas have experienced at least one price reduction in the past 12 months, well above the national average of 23.6 percent.

It all points to the supply vs. demand thingy I once learned about many years ago in my business 101 class I took at a community college. If anything, it appears the Las Vegas market has plenty of supply to choose from -- but there is a clear lack of demand for homes offered at the initial offering price.

So buyers might be encouraged (as I emphasized above), but will only take action and demand when the price is right -- or else there wouldn't be this article about price reductions.

Thirty-five percent of homes listed at more than $150,000 dropped their prices at least once, compared with 23 percent of homes priced under $150,000.

It is not clear from the article how the data was collected but the above shouldn't be that much of a surprise given the fact that affordability is back front and center as a fundamental reason to purchase a home. The more affordable the price, the more likely the chance there will be multiple buyers with some interest.

Sellers in Las Vegas realize the market is in the toilet and have been steadily reducing prices, said Sue Naumann, president of Greater Las Vegas Association of Realtors.

"The most important thing in marketing a property is price it well," she said. "I counsel my sellers to look at what percentage prices are declining at and you either price it to sell today or you'll hold on to it for a while."

I'd add to that the most important thing in marketing a property is to price it well from the moment a seller decides to put the home on the market. Also consider pricing to levels that can be proven to be successful (look at a number of comparable recent closed sales for instance) instead of simply what other 'sellers' have their properties listed at.

Folks, it is no secret in a market such as this one that potential buyers are going to want to negotiate and bargain for a better price no matter what the listing price actually is. Here is the thing though, buyers have proven time and time again that they won't show up even to bargain until the current listing price is realistic to the current market. This could mean a price reduction... or even a series of price reductions... before buyers appear.

In many cases we see traditional sellers put their property on the market for a price that does not attract interest. At some point the seller decides to lower the price to a new level that may or may not attract interest. From the time that the listing hits the market and the price reduction goes into affect the clock is ticking and the market continues to slide. Wasted time.

While the article above states that the data does not include foreclosure properties in the findings, I've decided to put together some data reflecting price reductions and further negotiated price concessions for both traditional sellers and bank owned properties that have closed escrow over the last six months. To repeat, I'm not certain how Trulia worked up the data in their findings covered in the referenced article so a quick explanation on how I have for the charts below.

As a Realtor in the Kingman area I belong to the WARDEX MLS and over the course of a listing that successfully closes escrow there are three different (in most cases these days) prices recorded; the original price on day one of the listing, the current marketing price the day the property goes under contract, and the final fully negotiated sales price the day the transaction closes escrow.

The data below is reflective of closed transactions posted over the last six months... and, of course, this means it is disclaimer time before we go on...

Disclaimer... all data compiled for this report comes from the WARDEX Data Exchange and does not include any sales activity from outside that resource. All research is done only on single family homes and there is no inclusion of modular homes, commercial properties, or vacant land. The geographical area researched includes; all areas within the boundaries of the city of Kingman, north Kingman, the Hualapai Mountain area, and the Valle Vista subdivisions. Click here to see maps of the included area's.

Below there are two charts, one represents closed transactions by traditional sellers and the other is from bank owned or foreclosed listings.

Traditional Sellers:

(click on image for larger view)

Bank Owned:

(click on image for larger view)

Keep in mind that the only correlation these listings have is that they closed escrow in one of the last six months. There is no productive way for me to discern when they originally were listed for sale. Looking at my data and I see homes that were on the market for over a year, yet others that were on the market for less than a month. Some individual listings reduced price by larger percentages than shown, and others had no reductions (very few didn't have any negotiated price concessions throughout the life of the listing).

But the average data also has some commonalities as the all the average monthly figures show that the seller (either traditional or bank) reduced price and further negotiated and conceded price once the listing went under contract. Also, the average seller reduced more in price than they did during negotiation.

The bars in the charts represent the total price concession from day one of the listing to the successful close of escrow. The blue colored portion of the bar represents the average price reduction to attract a buyer. The results indicate that sellers are not in touch with either the market or buyers on day one of the decision to put their property on the market (and that even goes for banks with their foreclosure listings).

It appears that a trend is forming concerning the red colored portion of the bars above... as prices have fallen over the last year (at least) the negotiated price concessions have begun to get smaller (very visible for the bank owned properties). To me this means that prices are getting to the point where more than one possible buyer may exist for a properly priced, according to the current market, listing. The lock is off the door at least and perhaps buyers will come rushing through... ehhh, perhaps.

In any case, for you the perhaps traditional seller... planning to sell or already have your home on the market... the blue portioned part of the bar is your biggest hindrance on the path for attracting a buyer. Once you have adjusted the listing price accordingly to the current market, you will have the best chance to attract a buyer. For the traditional sellers represented above over the last six months it took an average of 112 days to attract that one buyer to enter contract and another 36.5 days to close escrow. Not much can be done to affect the latter average number, but much can be done about the former. Face it, 112 days is darn near four months and the market can change for the worse in four months... see this chart as an example...

As a seller in today's market you have to be aware of this particular trend line. Be prepared to think four or five months into the future and price accordingly.

The sales report for the month of May is just a day or two away from being posted be sure to come back and check it out.

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