The residential real estate market in many cities has been rebounding quickly after Covid put the brakes on in April and May. We are seeing record numbers of sales, at or above list price, in many of the markets that we lend on fix-and-flips to real estate investors. This rebound continues to be fueled by the lack of inventory, combined with owner-occupied conventional mortgage rates to qualified buyers in the 2%’s and long-term investment property rates in the 3%’s, with no immediate talk of a rise in mortgage rates.
But, being in a seller’s market does not mean that you should overprice your project in the hopes that buyers will be desperate due to lack of inventory, or that they will be willing to substantially over pay just because your newly completed flip is nicer than the one that sold down the street. As we talked about in the July 2020 blog, comparable sales and location drive value, and being priced at or over the top of the market can backfire, even in a hot real estate market. To get the best price, it’s crucial that you actually price your property correctly from the start.
Gone are the days of listing way above what the market calls for and hoping to negotiate to an agreeable mid-point. Buyers—powered by Zillow, RedFin, and resourceful agents—are savvier than ever and are still looking for a fair deal. So, if you overprice your property to begin with, you’ll run the risk of receiving zero offers at the original asking price. Then your listing will likely become stagnant, and you’ll have to keep dropping the price by small increments, hoping for a bite. In turn, Buyers will sit & wait to see if your price will continue to drop (they’re thinking that if it has dropped this much already, why wouldn’t it continue to drop further?). Finally, if your property sits on the market for too long (as Agents likely will not see it in their ‘new listings’ reports anymore), it will become stigmatized since Buyers may think there is something wrong with it, even if it is now priced accurately yet shows that it’s been sitting for far longer than the surrounding homes for sale.
We generally see that Sellers who price at or slightly below market receive multiple offers and end up selling above list price in current market conditions. If you do find that you have overpriced your property, it’s generally best to make one significant price reduction to bring it to market, rather than making several small incremental adjustments as discussed above.
August is expected to remain strong as pending home sales in July are still as much as 20% higher than July 2019 numbers in hot markets like Denver, Seattle, and others. As COVID continues on and many people are still working at home more than they previously have (thus placing an entirely new significant on the space and quality of their home), we predict that SFR demand will remain strong for quite some time. So take advantage of the market, but make sure to price correctly right out of the gate!