Wishful thinking in asking prices for homes
Many would-be buyers have complained here over the post-bubble years that homeowners trying to sell are often completely unrealistic about what their properties are worth.
Turns out that some economists agree.
Real estate data firm FNC notes in a research paper that its number crunching suggests "many homeowners are having a hard time dealing with the reality that home values have declined significantly."
"Homeowners continue to set price expectations that lag behind market declines, resulting in slower sales," writes Yanling Mayer, FNC's senior research economist.
"Those who are reluctant to lower prices to better match buyers' offers often end up withdrawing the properties from the market, only to re-list them again [at] a later date at reduced prices," he added.
As the housing market worsened, so did the gap between what sellers were asking and what they got. Nationwide, the typical asking price was about 8 percent higher than the typical sale price in 2007, 13 percent higher in 2008 and a whopping 24 percent higher in 2009, FNC says. The gap narrowed last year -- with asking prices 13 percent higher than sales prices -- but are on the rise again, averaging 17 percent in the first seven months of this year, the company said.
This accounts for all homes for sale vs. all homes that sold. FNC found gaps -- though not as big -- when it looked at different slices of the market:
"Excluding the listings of those remaining on the market, the gap between median list prices and median sale prices decreases but remains quite significant," FNC said.
I've heard from some buyers that they don't make offers they think are fair-market value on homes with asking prices that are way off -- they just keep looking. So it makes sense that FNC found a smaller gap between the typical asking price and sales price of homes that actually did sell.
FNC also compared individual experiences, looking at the asking price vs. the sales price for specific properties. Here's how that sorted out, according to the company's report:
During 2008 and 2009 when market conditions were rapidly deteriorating, initial list prices set by homeowners of non-distressed properties averaged 9-11% higher than final selling prices. They have remained relatively unchanged in 2010 and in recent months. Median time-on-market also continues to reach beyond 5 months.
In comparison, foreclosed properties' initial list prices were more than 25% higher than the final prices paid by buyers during 2008 and 2009, with a median time-on-market of 7 ½ -8 months. Since then, the list price markup has come down significantly, averaging 15-16% above final selling price and shaving 1 to 1 ½ months off time-on-market.
Buyers, what are you seeing out there? If you've been looking for a while, have you noticed any change in how reasonable or unreasonable asking prices are? Do you ever make a lower offer on a home you like with an asking price you don't, or do you just move on to the next candidate?
Sellers, have you had trouble determining a fair price to ask? Do you think homes that sit on the market for months are always priced too high, or do other factors come into play?