Risks in a Changing Market

By MICHAEL EDLEN | Special to the Palisadian-Post

One constant in life and real estate to expect is continuous change. Even when the real estate market seems to only be heading upward, underlying changes are usually beginning.

Historically the market has undergone major cycles every eight to 10 years, and many observers believe we are about at the point where another such period may begin. Yes, there are usually some signs that change is beginning. However, most often it is noticed in the rearview mirror, perhaps months after the transition has already started.

Here are seven potential indicators to expect: increasing inventory as compared with a decreasing rate of sales, a higher percentage of escrows falling out, fewer multiple offers, an increase in re-negotiation during escrow, a greater number of price reductions before offers are made, listings expiring or being taken off the market, and a decrease in the sale-to-list price ratios.

Careful observation of the current real estate market shows some evidence of all these changes as we approach the new year. How much of this may be due to the typical market slowdown in December is unknown. However, caution signs are on the horizon.

Homeowners who decide to sell during this time of maximum home values will benefit by being less aggressive in their expectations of the market than some have chosen to do recently. The gradual erosion of underlying market strength that had led to multiple offers on a high percentage of listings has become apparent. Also, even when multiple bidders exist, fewer are seen to engage on most listings, even when well-priced.

Though some strategies can be used to maximize the energy of multiple offers, it has become more challenging in today’s market even when a careful system is implemented to achieve this goal. Hence it is even more important to set the list price optimally to encourage multiple offers, yet not too low that will leave money on the table in the process. The agents most seasoned through having experienced and managed many such situations during the last several years will likely outline and help design an approach that may yield maximum results for any particular listing.

Another element to consider in pricing correctly is the seller’s “window of opportunity.” The average time on the market in Pacific Palisades is now about three to four weeks. During slower periods years ago, it was as long as four to six months.

Sellers may say they do not care how long it takes to sell their home and are willing to wait as long as it takes to get the price they want. However, if it remains on the market too long beyond the “window,” it is gradually perceived as having less value.

Though proper pricing is an essential, it is not the only element to consider in attaining the best results. Some homes do not do as well or even fail to get sold due to the way a house is prepared and presented, how well it is marketed, failure to take into consideration some of the locational elements, and, in some cases, insufficient information for buyers to know about in a timely manner.

Ideally, a collaboration between the sellers and an agent who experienced the difficult market of 2008-12 will lead to an overall strategy considering all the relevant factors they can anticipate. Such a process will optimize the seller’s bottom line and minimize unexpected bumps along the way.

Michael Edlen and his team have successfully managed the sales of hundreds of homes during the current “seller’s market” and are available for consultation at michael@edlenteam.com or 310-600-7422.