Why Chasing Down The Market is A Risky Real Estate Gamble!

Audu Real EstateIn Grand Rapids, Michigan it’s an argument that every real estate agent has heard at least once.  In the opinion of most…one time too many.  It goes something like this.  I’d like to sell my home, but I need (X) amount from it.  I know that you are recommending I list my home for 10 ~15 % Less than (X) but I figure that if buyers are interested, they will make an offer.  I refer to this argument as the decision to Chase Down the Market.

Chasing Down the Market has become a real estate consumer sport.  Homeowners gambling with the odds of Selling their home before the market swings further south usually have several options up their sleeves.  These include:  Lowering the Price of the home, offering incentives to buyers such as 3 months of FREE Mortgage Payments or providing decorating allowances. These are held out like chips to bait potential home buyers.

Sometimes, these gambits work and attract an offer.  But, it’s usually not the offer that was anticipated or expected.  What we are seeing in Grand Rapids, Michigan and across the country is that buyers for homes are remarkably well informed.  Incentives are no longer viewed as reasons to purchase.  Instead, savvy buyers dig deeper to try to determine WHY Incentives are necessary. 

Savvy buyers understand that irregardless of the market, Accurately Priced Homes will Sell even within a challenged market like Grand Rapids, Michigan within 3-4 months. 

It’s particularly instructive to note that Banks who own a number of Foreclosed homes in the Grand Rapids area right now also understand this.  In fact, these banks will often lower their prices several times within a relatively short period of time simply to ensure a quick sale. This tactic has led to an increase in the sales of Bank Owned Homes to a level which is almost 50% of ALL Current Sales in the Grand Rapids area.

The implications of so many foreclosed and short sale homes on the market has had a devastating effect on homeowners who are Chasing the Market Down.  Last year, the Grand Rapids Association of Realtors statistics indicated that homeowners who did not sell their homes during the first 5-6 months eventually Sold their homes for an average of 25% Less than the Listing Price.  This was in stark contrast to those who through pricing their home properly to reflect the current market usually Sold within 3-5% of the Listing Price

Thus the Penalty for Chasing the Market Down and Loosing in 2007 was about a 20% Reduction in Net Proceeds.  This did not take into account the investment of additional time on the market or the inconvenience of two mortgage payments in some cases. Unfortunately for home owners, playing this game in 2008 will be even more risky. 

With foreclosures and short sales on the rise, and a large influx of homes anticipated for Spring Market of 2008, the Grand Rapids real estate market simply does NOT have the elasticity to absorb all these homes for a couple of MAJOR REASONS.  The most significant issue is the Lending Crisis which has dried up funds for a large number of potential buyers.  Secondly, since many areas of West Michigan have now been designated as Declining Markets, potential buyers are being asked to come up with larger down-payments and sometimes having to pay higher interest rates unless they qualify for a government funded program.

In my view, Chasing Down the Market is a risky gambit. The twists and turns of gambling in this market require a pretty strong constitution…one which many home owners are ill equipped to maintain.  The closer your initial asking price is to the Bullseye, the better your chance of obtaining a fair price and the pre-requisite mortgage for a buyer which allows you to move on with your life.  Less exciting perhaps…but certainly easier on the stomach wouldn’t you say?

Copyright 2008  Audu Real Estate  All Rights Reserved

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