Overpriced Homes in a Buyer’s Market

by Karen Goodman on November 30, 2007

I just read an interesting article by James Asbury, President of the Missouri Association of Realtors, that suggests the real reason behind the current slow market is overpriced homes and unrealistic sellers.

He notes that the average national appreciation for homes purchased between 1987 to 2000 was 4% per year. Then we hit a booming market, and the appreciation from 2000 to 2007 rose to 8% per year. Sellers are struggling with the concept that since 2006 their home has either stopped appreciating, or the value may have even declined from the peak prices seen in 2005.

Sellers that are pricing their homes as if the market hasn’t pulled back are finding that their homes are not selling. In St. Louis County, there were 25,389 listed single family homes that sold so far in 2006. But another 11,038 homes in St. Louis County during the same period were listed…and later expired or were taken off the market without selling. That means that 43% of all home listings did not result in a sale! Granted, some of these listings eventually sold when they relisted with another agent….AND they dropped their price.

One of the unique tools that I have available to me through The Kelsey Group, Realtors is a program to evaluate annual appreciation.

Let me give you an example of how this works. I was recently working with a buyer that wanted to purchase a home in University City. The street that he really liked had a number of homes on the market. Since this street has traditionally appreciated very well, many of the sellers seemed to be struggling with the reality of today’s market, and appeared to be very overpriced.

My buyer narrowed down his preferences to 2 homes. The first one was purchased in 2000. The owners made some improvements that weren’t really wise…such as $45,000 for a new driveway. Of course, they expected to recoup their entire investment plus make some money on the house, and they priced the home accordingly.

Not surprisingly, this house is still on the market after 281 days. They actually have dropped their price quite a bit already. When they started with a list price of $524,900, they were asking for 10.75% annual appreciation. My client passed on this one. We never even made an offer.

Instead, we moved on to a house down the street. It didn’t have all the features of the more expensive home and it was priced accordingly. Even better, these sellers seemed to understand that the market was slow and priced their home to reflect the market. We negotiated the price down about 2% from the list price. The buyer got the house at a fair price for the current market, and the seller got the home sold quickly.

Homes that are priced appropriately DO sell. When you are ready to sell your home, you need to know what the appreciation rate would be if you stick with your proposed list price. If you are thinking of selling, or even are wondering what appreciation rate you gave the sellers when you purchased your current home, feel free to contact me for a no-obligation home appreciation analysis of your home.