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REALTORS can Rescue the Housing Market
4/18/2008

Taken from: www.realtown.com

Nobody knows better - or at least, should - why homes aren't selling in the marketplace. No, it's not because of the mortgage meltdown: Contrary to popular belief, mortgage rates are still historically low and credit-worthy buyers experiencing no problems securing finance. And there are plenty of potential buyers. Most REALTORS will tell you they are working with dozens of buyers - but they can't seem to get them to "take the plunge." How is it, then, that low and available finance, a broad pool of "interested" buyers and great deals on inventory - apparently there are some 3 million units of excess inventory in the housing market - how is it that the market has stalled?

Price.

Only in real estate can you expect the exact opposite to happen to commodity prices. Today, most real estate on the market is simply priced too high to induce buyers to make an offer. Subtract all of the sellers who "need to get above market value to rescue their financial situation" and you still have lots of inventory that's simply priced improperly. The proof of the pricing problem is easily identified: Look at the total "time on market" for a listing. REALTORS can tell you this information by pulling the original listing date from their MLS. And chances are, the property has been "available to buyers" for a long time - and probably has "adjusted" its price a number of times since the "initial public offering."

Now, let's be accurate: Most of the homes "available to the public" haven't really been on the market for a very long time. Take a home that was "originally listed" in January. If the prices was "far above comparable properties" then the property wasn't actually on the market. It might have been "for sale" but to be on the market, it had to be competitively priced and positioned amongst the other commodities available to buyers. Buyers understand this: they have watched properties lower their price - once, twice, three times or more - since first "offered" until ultimately it enters the market.

And that's why buyers are waiting. They are simply waiting until the properties they are interested in enter the market.

This is what REALTORS - and sellers - don't understand. You can forgive sellers for not understanding: They aren't supposed to understand because they don't really get that the price of their home is set by the buyer, not by their agent or themselves. For some reason, sellers continue to think their house is immune to market forces of supply and demand. Their house is "special" so its price is determined by their mind; until, of course, no buyers choose to "agree" with them and make an offer.

We can understand sellers; but we can't understand REALTORS. If, by now, REALTORS don't understand that the buyers set the price of their listings; if they don't understand that buyers may be fickle but they aren't idiots; if they don't understand that buyers have access to the entire data set of the market, so they are aware of the full marketplace of offerings; then it's no wonder why REALTORS aren't able to turn around the marketplace.

The solution, however, is within REALTORS' reach. There are three possible options:

1. Stop placing "overpriced" listings into the marketplace. Every time a REALTOR lists an overpriced property, their only guaranteed outcome is lots of expenses marketing it for a very long time. In fact, if the REALTOR "knows" it's overpriced in the first place, it could easily be argued that they are acting fairly unethically. Even though they have to follow the "lawful" direction of their clients, the sellers, it's poor business ethics to give the sellers any false pretense that their property has any chance of selling if overpriced. And since the real estate market doesn't correct prices as quickly as stocks - which fluctuate up and down in real time response to buyer demand or avoidance - the role of the REALTOR in placing a commodity "near" the market but not "onto it" is critical - and can be harmful to consumers if they continue to do it improperly. The easiest way to reduce this problem - and the harm to their sellers - is to simply encourage their potential clients to wait until such time as they are ready to place the property into the market, at the market price - and not attempt to promote it or place it online until then.

2. Help buyers understand the difference between "playing the real estate market" and "making a lifestyle decision" if they are waiting on the sidelines too long. Certainly, some buyers are "first timers" so they don't have a home to sell before they decide to buy. These buyers can "wait" longer, to some extent, but it's not without cost. As the current bust shows; most people lose if they wait for the perfect conditions before playing the housing market. If the first timer thinks they're going to buy low to sell high, they're still paying a cost in the "meantime" - renting (throwing money away) or risking higher interest rates or even the "convenience" factor. Since most buyers purchase homes to satisfy an "non income/revenue/return" need - they need more space, want a shorter commute, etc - then waiting only means they have to endure inconvenience longer. That's the conversation REALTORS need to have with buyers: Determine what they're goal is: waiting for the market to bottom out, or purchasing the right home at good prices for personal reasons. If REALTORS encounter the former, they should politely refer them to someone more qualified to help speculators game the market; and they should seek out the latter consumer, the ones who are ready, willing and able to buy today.

3. Stop pricing their listings. Entirely. Who says you have to "price" the home to place it in the marketplace? Only MLS, an outdated, cranky system of rules and regulations that have no real bearing on sales and marketing. What if REALTORS didn't price a listing? What if they simply built a value statement for the property - it's features, it's benefits, it's unique opportunities - and they marketed that to the public. Let the buyers make the first offer. (Remember, pricing the home means the seller is making the first offer; and the buyer is in the strategic position of making the counter offer!). By marketing exclusively on features and benefits, the REALTOR does the right work: They look for consumers who want the value package of the home: it's location, it's amenities. And that value will be determined by the buyers who will make a judgment on its worth - and make the first offer.

Think of it like this: If someone in Boston sells a 1000 square-foot condo for $500,000, that sounds like a lot of money for a little amount of space. Let's say he wants to purchase something with more space, a quieter suburb and off-street parking - all expensive values in Boston - but when he goes to the suburbs, he finds lots of opportunities for these. What if he finds his dream home - twice as large, tree-surrounded and quiet, with a three-car garage. How much should he offer? He has $500,000. If he really "wants it" why wouldn't he offer all of his $500,000? Who sets the value - homes down the street, or the mind of the buyer? How frequently do you think he'd be willing to spend more than the seller or REALTOR thought it might be worth.

Never, you say? Really? Isn't that exactly what happened during the last boom? Bidding above asking price for properties. Why? Scarcity? I doubt it. People buy homes because they want them. If they have to pay more, it's because their emotions overwhelm their reasoning. If they want it, they'll buy it. So why under-price it, or at least risk losing a better offer, by pricing it in the first place?

Of course, traditional REALTORS aren't going to do any of these things. "We don't work that way," will be their answer. "MLS makes us put a price in," will be the appeal-to-authority cop-outs. Even so, the fact remains: Whatever REALTORS are doing today isn't working. Sure, a few homes are being priced right and moving fast. Too few, and too rare. If REALTORS really want to change the market fast, they should stop waiting for the government to bail out their sinking ship and just jump overboard. They might be surprised what swimming with the sharks might really accomplish.



Posted By: Charlie Bross.

Go to http://HRTrainingCenter.com for more information about this blogger.

This article is relevant to the following keyword(s): 'real estate, realtor, real estate agent, pricing, housing market'

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