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What You Want to Hear vs. What You Need to Know

A new year brings changes. Some homeowners will decide that this is the year to move on with their lives in some way. Some will move south to join children and grandchildren. Others will move either east or west in search of a better career opportunity. Growing families may decide to purchase a larger home with a bigger back yard. Empty nesters may determine to downsize and begin to prepare for their retirement.

Often, the families will need to sell the house they are currently living in. In this confusing and rapidly evolving housing market, the vast majority will take on the services of a professional real estate agent (88%).

According to the National Association of Realtors’ 2010 Profile of Home Buyers and Sellers the number one thing the seller wants from the agents is “help pricing the home competitively”. And therein lays the dilemma.

What You Want to Hear

Every homeowner wants to maximize the sale of their house by achieving the highest price possible. Every truly professional agent realizes this and has the same goal. However, what the homeowner believes to be the value of their home might not be in line with current market conditions. When the agent explains this to a seller, there can be a natural skepticism on the homeowners’ part. Is the agent telling me the truth or just trying to low ball the price to make a quick commission?

Adding to the dilemma is the fact that there is at least one agent in every market that will tell the seller whatever the seller wants to hear in order to avoid conflict. Or perhaps, just to get the listing on the property.  

When these doubts arise, remember:

A pretender worries about your feelings and places great emphasis on whether or not you will like them. A professional worries about your family and how they can help. A pretender will tell you what you want to hear. A professional will tell you everything you need to know.

What You Need to Know

If an agent is telling you that the price you were hoping for is not available in the current market – listen! They are probably saving you from a further decline in value as 2011 proceeds forward.

Here are a few reputable sources and what they have to say about housing prices. Each of the quotes below were reported in the last 10 days.


A wave of foreclosures waiting to reach the market means home prices will remain under pressure in 2011 … “The double-dip is almost here,” said David Blitzer, chairman of the index committee at S&P. 

CNN Money

The (Case Shiller) report ran counter to what have been generally positive signs of economic recovery, according to Richard DeKaser, an independent housing market analyst and founder of Woodley Park Research.

The coming of the second of the double dip is icing on the cake for homebuyers, who already have benefited from prices not seen in years in most markets.


Stalled foreclosures waiting to hit the market will put additional downward pressure on prices, according to Westwood Capital.  “The market has still not completed the price discovery necessary to determine the final value of housing – after all, easy money policy is still producing affordability that has masked the failure of prices to completely readjust to normalized levels,” Westwood said in a research note.  

Wall Street Journal

The housing market, which appeared poised for a recovery earlier in the year, now could be heading for a second downward drift …

The housing index was driven down by factors including the expiration of a tax credit for buyers who signed contracts by 4/30, which caused demand to fall off.

Prices also were weighed down by a huge inventory of foreclosed homes, which tend to sell at sharply discounted prices.

Wells Fargo & Co. projects prices will drop 8% more by mid-2011.


(T)here are two factors specific to the housing market that are putting downward pressure on home prices.

The first factor is the expiration of federal home buyer tax credits for first time home buyers.

“That tax credit stole demand from the future and its expiration led to another 30% fall in home sales, pushing Case & Shiller lower for the last few months,” (Nouriel) Roubini wrote in a text message earlier this morning.

The second factor putting downward pressure on home prices is the ongoing chaos with mortgage documentation, and the consequent suspension by banks of mortgage foreclosure proceedings—which has actually worsened the underlying problems in the housing market …

“The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year,” Roubini says.

Gary Shilling

This huge and growing surplus inventory of houses will probably depress prices considerably from here, perhaps another 20% over the next several years … Furthermore, our forecast of another 20% fall in house prices may be conservative. … another big house price decline will spike delinquencies and foreclosures leading to more REO sales, which will further depress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc. 

Bottom Line

If you are considering selling your home in the next year, sit down with a local real estate professional today. Let them explain what is taking place with prices in your community. If they suggest a price less than you had hoped for, do not immediately eliminate them as your agent. Ask them to explain their thinking and, if they can do that in a simple and effective way, consider yourself lucky.

You have just found a professional!

To all potential buyers:  Just because prices are falling does not mean you shouldn’t buy now. Prices may be decreasing but your cost may be increasing. We’ll explain this in tomorrow’s blog. – The KCM Crew


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4 replies
  1. David Mott
    David Mott says:

    With broad brush strokes, home prices everywhere are supposed to decline or rise by some amount. What could be the actual price floor?

    What about using your insurance rebuild rate? Cost of materials + local labor rates, etc. are how rebuild rates are derived. Included in this amount might be demolition and removal, but also NOT included is the value of the lot (as far as I know). Lot location and value can vary quite a bit. If you include the lot value into the rebuild rate, you might find that the rebuild rate is actually cheaper than purchasing a lot and having a home built on it.

    Here’s a for instance. I have a half acre lot and a 2200 sq ft home. The insurance man says that the rebuild rate (Oregon) is $130 per square foot. That’s a $286K value.

    If I use the county tax value on the lot alone at $97K, then this means that the house is worth $189K, or about $85 per square foot (psft).

    The big question is then: Can you get the house built for $85 psft? That may depend on what is involved in constructing the home. This site gives an average of $118 psft: http://www.b4ubuild.com/faq/faq_0002.shtml

    So, using their average, 2200 sqft costs = $260K. Is the lot included? That was only a question in the article. I don’t think it does.

    $260K vs a $286K rebuild cost means the lot is now worth $26K, not $97K.

    So, you can see that using the rebuild rate as a price floor is more than generous in most cases.

    Hoping for prices to fall below a rebuild rate is like hoping for your property taxes or your insurance rebuild rate to fall. I just don’t see that happening.

    One more thing to ponder: You will never see a chart showing price fluctuations in real estate with an accompanying chart of population growth. Why is that?

  2. Jane Foster
    Jane Foster says:

    Yes, every seller I have had in the last 3 years who did not listen to me when I told them what their house was worth and chose to list with another realtor who listed it at the unrealistic high price they wanted, has come back to me and said, “I wish we had listened to you and we would not have lost so much money.”


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