First of all, at least in the Philadelphia area, prices are not plummeting. So don’t get hung up on thinking you “missed the market”. You might have missed the tippy top prices with people waiving all contingencies but it’s still very much a seller’s market (show kcm chart)
Things you will need to do differently:
- Recognize mortgage rates have changed what buyers can afford. Possibly the most important factor affecting what home buyers can afford is the spike in mortgage rates. When a buyer is constrained by a maximum monthly budget for housing costs, the shift in the interest rate from, say, 4.5% (which we saw in the spring) to around 7% (it’s now November) substantially changes what she can afford. The monthly payment for a loan of $400,000 back in April might be the same as for a loan of $325,000 today. So, clearly, the rates affect the price range a buyer can consider. For an in-depth explanation with numerical examples, click here.
- Be sure to analyze most recent comps. When you are pricing your home, keep in mind how quickly the market has changed over the last six months or so. Be careful when looking at comparable sales which may have sold when rates were lower, inventory was lower and demand was higher (all of which result in higher prices).
- Based on 1 and 2, price accordingly. If you price your home above market value, it will sit on the market and you may end up getting even less for it than you would have had you priced it right originally. You’re better off pricing it slightly below what you perceive as current value in order to promote more showings and competition with multiple offers.
- Consider a pre-listing inspection. Personally, I always recommend sellers have a pre-listing inspection. It removes the likelihood of unpleasant surprises down the road. If you know what the issues are, you can choose what to address. Then be sure to disclose everything on the report as well as annotating it to reflect repairs you’ve made. The goal is to eliminate offers that have home inspection contingencies. One obvious advantage of a non-contingent offer is not having the total purchase price chipped away at as a result of inspection negotiations. Another, equally valuable advantage is that non-contingent offers don’t allow the buyer a way out of the transaction once their deposit has been received. (Some buyers who submit offers with home inspection contingencies actively continue to look at other properties and, if they find one they prefer, the use the inspection contingency language to terminate their original contract with the return of all their deposit money. It’s a great safety valve for buyers, but puts sellers in a position of no control.)
- Expect more contingencies/negotiations. Be realistic. As the market is becoming slightly more friendly to buyers (though it is still more of a seller’s market, by far, than a buyer’s), buyers will begin to have a little more negotiating power. While this new-found power will be evident in the prices offered, it will also be reflected in other terms of the offers, like the contingencies that are elected. Furthermore, buyers are more likely to push back a little harder when negotiating inspections. Expecting those changes and being prepared for them will help you.
- Be intentional regarding staging your home and putting its best foot forward. Earlier this year, sellers did not have to spend much time or effort getting their homes in “show-ready” condition. Inventory was so limited and demand so high, many sellers didn’t feel that that it was worth the trouble. We are definitely starting to see a bigger differnce in the amount of demand for a specific property as well as the final sales price when comparing staged and “readied-for-sale” homes than “as-is” properties. If something is really not in nice condition, current buyers may have more options to choose from. Also, today’s buyers are less inclined to “use their imaginations” and their wallets to enjoy the home’s potential. They’d rather pay a little more at the outset but know they are purchasing a home that needs less work. So pay attention to areas of your home requiring some attention and consider whether staging (with the addition or reduction of furnishings and accessories) could benefit your bottom line.
To state the obvious: the last two and a half years have been wildly volatile and unpredictable. The expectation is that our current trajectory indicates a return to a more “normal” market. However, with high inflation, interest rates which are still leavin some buyers scrambling to understand what they can afford and other global economic factors in play (fuel prices, the Russian-Ukranian war, etc.), it’s anybody’s guess as to what will happen.
I have noticed many buyers choosing to put their home purchase plans on the back burner, expressly to wait until “the dust settles” and they feel they can more accurately assess the economic climate and predict the near future. My guess is that we see some of the pent-up demand from those buyers showing up in the spring market (March/April/May). I also think that there may be some home owners who, with higher mortgage rates to contend with when they buy, opt not to list their houses as they would incur monthly payments that don’t allow them to make enough of a lifestyle improvement to merit a move. The combination may mean another spring market with very high demand and very low inventory which could push prices back up. Who knows? These musings are all conjecture and I’m not Warren Buffet. So don’t take my opinion as anything other than what it is.