Home pricing strategies focal point of 2016 housing market

2016 housing market hinges on home prices.

A home selling season has not been anticipated so much by home sellers since 2013. It’s not that 2015 was a bad year for housing, because it wasn’t. It’s that many home owners who have been wanting to sell since 2010 (some because of being underwater) may be in position to make the long awaited move.

A central reason for the reanimation of the housing market is, of course, home prices. Several major indices concur that home prices have made significant improvements through 2015. S&P/Case-Shiller U.S. National Home Price Index (spindices.com) reported a 5.2% annual increase in October, while the FHFA House Price Index (fhfa.gov) revealed a 6.1% year over year increase in October. November’s CoreLogic HPI (corelogic.com) indicated a 6.2% year over year increase and project a 5.4% year over year home price increase next November. And as much as home values had healthy gains nationwide, the local Washington DC metro region’s home annual price increases were more modest: 3.1% according to CoreLogic, and about 1.7% according to S&P/Case-Shiller.

home equity — US Home Equity Report (from corelogic.com)

Although negative equity continues to burden many home owners, the good news is that the number of underwater homes is decreasing. Although home prices continue to edge higher throughout the nation, there are many who are still underwater. According to CoreLogic’s Equity Report Q3 2015 (corelogic.com), 256,000 homes regained equity. And although 92% of mortgaged homes now have equity, about 4.1 million homes continue to be underwater. 17.6% of mortgaged homes are considered “under-equitied” (less than 20% equity), while 2.2% are “near negative equity” (less than 5% equity). 29.3% of underwater homes in the US are located in five states: Nevada, Florida, Arizona, Rhode Island, and Maryland. While 87.9% of Maryland mortgaged homes have equity, 95.5% of mortgage homes in Washington DC have equity. However, the local Washington DC metro region (DC – VA – MD) records 89.2% of mortgaged homes with equity – leaving about 10.8% of mortgaged homes underwater.

If you’re selling your home this spring, you want to capitalize the market. Although you want to benefit from the current low inventory; realize that by late spring, the housing market gets into full swing and inventory surges while your competition intensifies. Also consider the home buyer: many consider themselves savvy consumers who are money conscious and more fiscally responsible than their 2006 counterparts. Most home buyers want homes that have new or recent updates, including systems (such as HVAC and roof). There are few who are willing to make repairs or upgrade homes they are moving into; much less budget for a new roof or furnace in the first years of home ownership.

The sensible way to make the most of your sale is to have a plan, and pricing your home correctly should be the focal point. Don’t fall into the trap of pricing your home by comparing national price increases or worse yet – media reports of hot markets. Real estate is a local phenomenon and you should collect data within your neighborhood (the closer to your home the better). Your real estate agent should be able to produce a detailed market analysis and explain how the comps vary and correspond with each other and to your home. Consider your home’s condition and amenities. You may have to adjust your price if your home is in need “TLC.” However, updates to the kitchen, bathrooms, windows, roof, flooring, and HVAC not only add appeal but also add value.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

September 3, 2015November 23, 2021

Real estate agents, emotional intelligence, and sale price

Can real estate agents with high emotional intelligence get you a higher sale price?

When it comes to selling a home, the prescribed course of action is to set the right listing price and prepare the home to be shown. Real estate gurus proclaim these as the two most important items to making the most money from your home sale. And although these are widely accepted goals to getting your home on the market, recent research may actually counter the conventional wisdom about pricing and staging; while a new line of thinking suggests that you’re choosing the wrong agent too.

Staging, as we know it, has been a staple of home sales for almost forty years. And listing agents almost always discuss it during their listing presentation. Research has already proclaimed that furnished homes sell in less time than vacant homes (see Chien-Chih Peng’s study published in the June 22nd 2004 issue of The Appraisal Journal), but does staging add perceived value to the price? Well, Lane, Seiler, and Seiler (2015. The impact of staging conditions on residential real estate demand. Journal of Housing Research, 24(1), 21-35) conducted the first study to determine the virtues of home staging. Their results suggested that home staging does have some impact on the home buying process, as you might expect; “…we find a neutral wall color and good furnishings do significantly influence a buyer’s perceived livability and overall opinion of the home.” However, the study’s main conclusion was that staging a home does not significantly impact sale price.

If you think that pricing a home is a straight forward process of gathering and extrapolating the latest neighborhood data to your home, think again. There may be more going on in your head than you realize. A recent study by Loveland, Mandel, and Dholakia (2014. Understanding homeowners’ pricing decisions: An investigation of the roles of ownership duration and financial and emotional reference points. Customer Needs and Solutions, 1(3), 225-240) suggested that home sellers make different home pricing decisions based on the length of ownership, anticipation of financial gain, and emotional experiences in the home. It seems that the longer you have owned your home combined with a greater financial gain or positively associated memories, may incline you to over-price your listing and likely maintain a higher price; while those who have a shorter time of ownership combined with less financial gain or bad memories price more reasonably, and are more likely to make larger price adjustments.

So maybe getting the most money for your home comes down to your agent. After all, research confirms that experienced real estate agents sell homes faster and for more money than rookie agents. And yet, subjective conceptions of agent traits may guide you to choose your agent, regardless if your assumptions are valid or erroneous.

Forget savvy, forget aggressiveness, forget connectedness, or any preconceived notion about what personality traits your agent needs. A recent pilot study of licensed real estate agents by Swanson and Zobisch (2014. Emotional intelligence understanding among real estate professionals. Global Journal of Business Research, 8(5), 9-16.) suggested that the key underlying trait for real estate success and financial gain is emotional intelligence (EI). The concept of EI is complex, and is often confused with typical personality traits such as sanguinity or purpose. Rather, EI is the ability to be aware of, and command emotions in oneself and others. Those with EI are thought to be empathetic and able to acknowledge responsibility for actions and emotions. Additionally, those with high EI are likely to better understand and manage others’ motivations – which is fundamental to negotiation.

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March 4, 2015July 6, 2019

How to price your home in 2015

In case you haven’t been following along closely, the March 3^rd release of CoreLogic’s Home Price Index (corelogic.com) indicated that nationwide home prices increased 5.7% during January compared to the same period last year; and there was a 1.1% increase during January compared to December. And believe it or not, CoreLogic stated that nationwide home prices including distressed sales are only 12.7% below the peak; and only 8.6% below peak if you exclude distressed sales.

Of course, national home price data are an average of regions that vary economically, reflected in their respective housing market. CoreLogic Chief Economist Dr. Frank Nothaft stated, “House price appreciation has generally been stronger in the western half of the nation and weakest in the mid-Atlantic and northeast states…In part, these trends reflect the strength of regional economies. Colorado and Texas have had stronger job creation and have seen 8 to 9 percent price gains over the past 12 months in our combined indexes. In contrast, values were flat or down in Connecticut, Delaware and Maryland in our overall index, including distressed sales.” The only 2 states that realized negative price appreciation year over year (including distressed sales) during January were Maryland and Connecticut, where home prices appreciated (–0.3%) and (-0.6%) respectively.

If you include distressed sales, Maryland’s January home prices appreciated (–0.3%) year over year, (-0.1%) month over month, and is (-25.3%) from the peak. Regional differences, of course, exist: DC home prices including distressed sales appreciated 3.3.% year over year, (-0.4%) month over month, and is only (-1.4%) from the peak; Virginia home prices appreciated 1.4% year over year, (-0.2%) month over month, and is (-15.6%) from the peak.

The CoreLogic HPI Forecast projects nationwide home prices, including distressed sales, to appreciate 0.4% from January to February, with an annual appreciation of 5.3%.

CoreLogic expects consistent home price appreciation through 2015 and into 2016, due in part to a current shortage in housing inventory. Anand Nallathambi, president and CEO of CoreLogic, stated that “Many homeowners have taken advantage of low rates to refinance their homes, and until we see sustained increases in income levels and employment they could be hunkered down so supplies may remain tight. Demand has picked up as low mortgage rates and the cut in the FHA annual insurance premium reduce monthly payments for prospective homebuyers.”

According to the Greater Capital Area Association of Realtors® (gcaar.com) January Montgomery County single family home statistics, home inventory and home buyer activity increased compared to last January. Although total housing inventory increased 26.5% year over year, contracts (pending sales) increased 16.6%, and settlements (sales) increased 4.8%.

If you’re wondering how these statistics might affect your sale, you’re not alone; many home sellers are trying to shape a sensible marketing plan this spring, which includes deciding on a listing price. Consider that although listing inventory is currently relatively low, it is likely to spike within the next two months adding competition to a market competing for discerning home buyers.

Typical home buyers have been increasingly demanding value; besides looking for a “turnkey” (updated and ready to move in) home, they have also been sensitive to home prices. Since cash buyers are not as prevalent as they were two years ago, and many buyers are concerned about their monthly obligations and budgets; pricing your home correctly will be more important this year than it has in the past.

By Dan Krell
© 2015

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December 4, 2014November 23, 2021

Overcoming challenges of a winter home sale

Some might say that selling a home during the winter is advantageous because of limited seller competition. Although it may be true that there is less competition, there is typically less home buyer traffic during winter months as well. Additionally, many home buyers who look during the winter months expect home sellers to be more flexible about pricing, and may subsequently make a lowball offer. However, if you’re having your home on the market during the winter, preparation and marketing can increase your success.

Ideally, you have your furnace checked and cleaned annually by a licensed HVAC professional. But if you don’t, this might be at the top of your list to ensure your home is comfortably heated to warmly greet home buyers from the cold.

Checking the condition of the home’s roof, gutters and downspouts can lessen the impact of severe weather, including heavy snow and ice. Ice dams resulting from melted and frozen snow are known to lift roof shingles and siding – which can allow water to make its way into your home. Water penetration from ice dams can damage ceilings, walls and window casings. Left unrepaired, mold and possible structural issues may develop; which is obviously an issue when selling a home.

Snow and ice removal/treatment from sidewalks and steps is essential when selling your home, so as to lessen the possibility of someone slipping and getting hurt from a fall. Additionally, downspouts should also be cleared of snow to reduce drainage blockages, which can be a source of water buildup around the home’s foundation.

Another winter concern is plumbing maintenance. Problems with pipes can arise anytime the temperature falls below the freezing point. There is a misconception that frozen water inside pipes cause pipe ruptures; however, pressure that builds up from trapped air within frozen pipes is typically the culprit. A licensed plumber can advise you on preventing freezing pipes.

If you’re selling a vacant home, you might consider winterizing it. “Winterizing” is a term that describes the draining of the plumbing system. Winterizing may reduce the risk of bursting pipes and damaging plumbing fixtures. Hiring a licensed plumber to winterize/de-winterize may decrease the probability of damage to the plumbing system from any high pressure build-up. If you are out of town, you might consider having a trusted person regularly check on the home (even if you are listed with a real estate agent). This person can take care of any house related issues that may arise while you are away.

Decluttering your home can sometimes be a challenge; and during winter months, it can be even be more challenging to keep the home clutter-free. Winter is when we spend time indoors, creating comfort areas where we may accumulate “stuff.” Organization can help limit accumulation of winter clutter, but a daily tidy up may also be necessary to be ready for any buyer viewing.

Just because it is winter does not mean you should stop actively marketing your home sale. Having a winter pricing and marketing strategy can prepare for showings and negotiating with lowball offers. Weather permitting, winter open houses are a great way to allow potential home buyers to view your home in a controlled concentrated time period. Communicate with your agent about showing times and instructions; you may need additional notice for any last minute tidying as well as changing your availability due to the holiday season.

October 30, 2014July 5, 2019

When Selling a Home – stay away from gimmicks & listen to buyers

You’ve probably heard a story or two about a home that was priced very low to “create a buzz” and illicit a bidding war. And in fact, there was a 2012 article in a local newspaper about such a sale in DC that touted the rebounding housing market. But guess what? A recently published study, with robust empirical data, suggests that such a strategy may not be the best for a home seller. Furthermore, the study suggests evidence that real estate agents who recommend under pricing as a strategy believe that homes listed for less – sell for less than comparable homes.

Bucchianeri & Minson (A Homeowner’s Dilemma: Anchoring in Residential Real Estate Transactions. Journal of Economic Behavior & Organization. May 2013: 76–92) collected and compared data related to “anchoring” (higher list price to prompt buyers to make higher offers) and “herding” (lower list prices intended to creating bidding wars) theories. Although actual sale prices may depend on location and time on market, the conclusions are that homes listed at higher prices sold for more than those that relied on bidding up the price. The authors suggest that sellers should think twice before under pricing their home to create a bidding war; and suggest that results from such strategies are typically anecdotal.

If setting a higher price may translate into a longer time on market, how could you know if you are priced too high or low? Listen to home buyers. A study conducted by Case, Shiller, & Thompson (“What have they been Thinking? Homebuyer Behavior in Hot and Cold Markets.” Brookings Papers on Economic Activity. 2012: 265-315) of 25 years of data in four metropolitan areas concluded that there is a strong relationship between buyer’s perception of price trends and actual price changes; the stronger the price trend (in either direction), the stronger the agreement among home buyers perceptions.

Home buyers’ short term and long term expectations of home prices can differ. And although Case, Shiller, & Thompson indicate that it is more difficult to gauge long term pricing expectations, they were undoubtedly impressed that buyers’ were “out in front” of short term home price changes. They stated, “…We find that homebuyers were generally well informed, and that their short-run expectations if anything underreacted to the year-to-year change in actual home prices.”

If deciding on your home’s selling price gives you a headache, Stefanos Chen wonders if taking a Tylenol could assist in making a decision. In his October 23^rd Wall Street Journal article (Can Tylenol Ease the Pain of a Home Sale?), Chen reported of to-be-published research that indicates taking the pain reliever may ease the anguish associated with “loss-aversion” (an avoidance of a perceived loss).

“Can acetaminophen reduce the pain of decision-making?” by DeWall, Chester & White is expected to be published in the January volume of the Journal of Experimental Social Psychology (pages 117-120). The results indicate that those who took acetaminophen sold a mug (that was given to them 30 seconds prior) for significantly less than those who tool a placebo. Chen’s question whether taking a Tylenol could help a seller take a lower sales price is a stretch, considering that the study was limited to 95 college student subjects. Although further research is indicated, the study’s conclusions may have implications to lessening the “pain” of letting go of ownership.

By Dan Krell
© 2014