There were 235 new listings on the market in the Northstar MLS, Feb. 19. Total single family listings throughout the Twin Cities is over 5000, so 235 might not sound like a lot for one day. There is snow on the ground, and we’re still shoveling out, but we’re in a spring market.
During the fall I watched as new listings came on, and sold in a heartbeat. Because we have a shortage of listings we assume that everything sells in multiple offers, and within hours. We prepare buyers to write strong offers and counsel them that they might have to write several offers before to get the home they want. The statistics show us that homes are selling very quickly, most within 97% of the original list price. But, there’s more to this story.
Even though 235 new listings came on the market today, there were 88 Price reductions. That's almost 38% of the new listings. There were also 32 homes came back on the market, the first offer fell apart. Either there were refinancing problems, an inspection soured the sale, or the buyer woke up in a cold sweat after realizing he was paying way too much for that house. That's 13 1/2% of all new listings. There are also 25 cancellations. If you add 88 + 32 + 25 = 145 listings that were either reduced or went off the market in one day. This is the same pattern that I've watched throughout the fall. What does it mean?
If 38% of new listings are experiencing price reductions, it means that many homes are coming on the market unprepared or overpriced. Last year I showed homes in the $500,000 range in Minneapolis. One of those had original single pane windows from the 1940s, a very old roof, peeling paint on exterior shakes, and the funky layout. It was probably $75,000 overpriced for the condition. Another one was in terrible condition, stained curling vinyl flooring in the kitchen, original cabinets, countertops and sink from the 1920s, and an unfinished basement with spalling on spider web covered walls. There is a difference between retro and old. The seller didn't even manage a fresh coat of paint. The listing agent was present and I asked her if the seller is intended to clean the basement. She responded that no, he was selling it as is. My buyer was annoyed, and gave his opinion using words that I can’t. And no, neither home sold for anywhere near the original list price.
There is more than square footage and number of bedrooms to pricing a home. It is impossible for online evaluations to be accurate. Even though online data is highly invasive, data has not seen a home. It doesn’t know if the kitchen has been remodeled or just painted. It doesn’t know if the windows and roof were replaced, or if the garage burned down. Everyone complains that Zillow is not accurate. If 38% of listings have reductions, then not all agents who have seen the home are accurate either. Of course, sellers always want the best price for their home. They would rather believe that their home will sell for a higher price. Some agents feed them Hopium. They hope to get more than it’s worth for all the DIY projects that they posted on Instagram.
Buyers are savvier than they were during the real estate boom. These buyers are accustomed to reading disclosures, paying attention to inspections and drilling down on Google maps. Millennial's bring parents for eyes of experience, and second time buyers have higher expectations. Buyers recovering after losing their tail feathers in the recession are cautious buyers. They want not only comps, but assurance that the economy isn’t going to drop again.
It is a seller's market when we have short supply of housing available. That still doesn't guarantee that everything sells at any price. The spring market is usually the high point in sales in Minnesota. The dark of winter is cold and gloomy which makes it a good time to search because there is less competition, and we see how a home functions. Buyers were already lining up in December for a spring purchase. In 2017, the spring market started around Valentine’s Day with multiple offers the norm by the end of the month. In 2018, spring market is already marching forward. Prices jumped about 6.5% last year in Minnesota, and are expected to rise another 5.5% this year. Sellers need to know what buyers expect for their money. If a home is underpriced, they will get multiple offers over the asking price. When a home is overpriced, and not in top condition, buyers move on. Pricing based on Hopium is a sure way to frustration. That’s where we get price reductions, back on the market and cancellations. As much as this market looks like a seller’s market, there are some potholes along the way.