For home sellers, 2017 was a good year—largely because the majority of the U.S. was in a seller’s market. In fact, Freddie Mac has declared 2017 to be the best year in a decade for the housing market, thanks to economic growth, low mortgage rates and low inventory.
Gladys Blum, the #1 agent out of 629 realtors in the Salem, Oregon area, agrees:
“We’re sitting on sixty days of inventory now and that’s driving the frenzy. I’ve been selling for forty years and I have not seen a market like this. It’s driven by a demand from buyers that—because interest rates are so good—can buy cheaper than rent.”
Will 2018 Be a Seller’s Market?
Luckily, all of those market conditions that made last year the prime time to sell are still looking good for 2018. For starters, Bloomberg’s data says that existing home sales have recently reached an 11-year high.
Things are looking so good that Freddie Mac predicts total home sales (existing and new construction) will increase by 2% this year. Factor in the fact that November 2017’s housing inventory dropped to the second-lowest on record, and you’ll understand why some experts are anticipating that 2018’s housing market will be even better than last year.
But the news isn’t totally rosy for 2018.
Some experts predict that this year’s housing market may cool. That’s because both the Mortgage Banker’s Association and the National Association of Realtors are forecasting that interest rates will rise to between 4.5-4.6% in 2018—a trend that started in 2017’s fourth quarter.
Others point to the prediction that skyrocketing prices are expected to level off this year. While the rise in home prices beat the 6% predictions for 2017—
increasing by around 7% in November—they’re expected to level off this year.
In some areas, home prices will increase by as little as 2% in 2018. Recent data from the Federal Housing Finance Agency indicates that this slowing in home price growth has already started.
On the other hand, others anticipate that the continued trends of low inventory and high buyer demand will push housing prices to rise higher than expected throughout the year—just as prices outperformed predictions for 2017.
Overall, the picture for 2018’s housing market looks good. But shifting conditions and conflicting predictions suggest that for homeowners who want to take advantage of the current seller’s market—the time to sell is now.
Seller’s Market Pricing Strategies
With the favorable conditions of a seller’s market putting sellers in the driver’s seat, many think that the sky’s the limit when it comes to pricing. You might expect to get back every cent of the investments made into their home and assume that they can ask for more money than their neighbor recently sold for.
Unfortunately, this mindset is a major mistake that leads to overpricing.
Even in a seller’s market, overpricing will cause your home to linger on the market longer than it should. Homes that stay available too long in a hot market send up red flags to buyers and their agents.
Those red flags will either scare potential buyers away or lead to lowball offers. With only lowball offers to choose from, many sellers end up accepting less money than they would’ve gotten had they set their list price at or just below its current market value.
So how do you determine your home’s current market value?
Agents look at both recent sales of comparable houses and the asking prices of homes currently for sale. Why? Because those are the sales figures that your buyer’s appraiser is going to look at.
When Blum encounters a client tempted to overprice, “I explain to them that this offer is going to be followed by an appraisal, so we have to be in those limits where the appraiser is going to find comparables. It has to appraise or that can be an issue down the road.”
The key to evaluating comps—both for sale and sold—is in the details. It’s not enough to just look at the real estate statistics for your whole city. Comparables need to have the same or similar lot size, square footage, number of rooms and features like new wood flooring or kitchen countertops.
Appraisers and your agent also pay attention to larger considerations when determining your home’s value—including proximity and timing. Comps that are located in different neighborhoods or were sold more than six months ago carry less weight.
It’s always best to heed the advice of a top notch agent when setting your list price, however you can get a ballpark estimate yourself.
Easy-to-use apps like HomeLight’s home value estimator look at your specific street address to provide an approximate value. This information allows you to approach your realtor with realistic pricing expectations.
Seller Beware of Over-Market Offers
In a seller’s market, buyers are snapping up new properties within days. When you list your home at or just below current comps in those conditions, chances are your competitive price will spark a bidding war.
As the competing offers roll in, many sellers are tempted to accept the highest offer—but that’s not always the smart decision.
Why? Because your highest offer isn’t always your best offer.
If you do accept the highest offer, that’s no guarantee that you’ll receive that amount when the deal finally closes. Once the offer is accepted, your buyer will get an appraisal. If that appraisal comes back lower than the offer, the lender may pull out of the deal or ask to renegotiate.
In some cases, a buyer will make an outrageously high offer just to lure the seller into accepting the bid—with the express intention of renegotiating a lower price after the appraisal. That type of buyer may even include contingencies in their offer allowing them to renegotiate after an inspection or appraisal.
Luckily, there’s a way for sellers to avoid this tricky situation.
According to Blum, “If we’ve priced it to market and it bids up, then we didn’t price it wrong, the buyer priced it wrong. But we must make sure that our counter states that if it doesn’t appraise (at the accepted offer), it’s going to be the buyer’s responsibility to pay that difference rather than the seller having to adjust once the appraisal is done.”
There’s no question that a seller’s market is the best time for homeowners to list—but the process isn’t foolproof. It takes a good understanding of current market conditions, a practical pricing strategy and a smart plan for finding your best offer.
Article Image Source: (Gautam Krishnan/ Unsplash)